FASB to Re-Expose Proposal on Interim Disclosure Rules for Public Comment

The FASB on April 10, 2024, voted to issue a second proposal for interim disclosure rules, provisions companies would use to file quarterly reports with the SEC. Companies will get 90 days to comment.

The guidance would streamline interim disclosure requirements in the GAAP codification literature, as opposed to change current practice, according to board discussions.

“I don’t think that there is a change to practice,” Vice Chair James Kroeker said. “I view this really as a clean up of the codification,” he said. “This could have been done at the time we did the codification but we did keep this awkward set of requirements, some of which were contained in the interim guidance, sometimes it was in the cod section, sometimes it was a portion in the interim, and so it was just confusing to a user of the cod what are those requirements,” he said.

The new proposal will revise the 2021 Proposed Accounting Standards Update (ASU) No. 2021-001, Interim Reporting (Topic 270): Disclosure Framework—Changes to Interim Disclosure Requirements, in areas “around the methodology used to determine interim disclosures; the interim disclosure principle; the descriptions of the form and content of interim disclosures; and the form and content requirements from the 2021 proposed update.”

As was the goal of the 2021 proposal, the revisions “would allow companies to use the codification more efficiently and effectively” and isn’t expected to result “in a significant change in practice for entities,” staff told the board. “Overall, the staff believes that expected benefits of the guidance resulting from this project, justify the potential cost of application.”

Some Aren’t Convinced Practice Won’t be Changed

Some FASB members were not convinced that the proposal won’t change current practice, observing that capital markets have evolved over the years.

“I don’t think we’re codifying current practice, I think it will change current practice,” Board analyst Frederick Cannon said. “I don’t think we’re aligned with the evolution to the capital markets over the past 40 years where for publicly traded companies the quarterly information is vitally important,” he said. “Now I do admit that it might not align with the current conceptual framework in terms of what it says about interim disclosures – interim disclosures are clearly secondary in that framework, they’re not discrete, they rest on the relationship with the annual report. I just simply don’t believe that’s in line with what for publicly traded companies, investors would need today. As I mentioned before I do think this will restrict interim in ways we don’t know.”

Similarly, Board academic Christine Botosan said that because the board made a “heck of a lot of changes to what was exposed before” re-exposure would be necessary. “I don’t see how we’re not going to end up changing practice…. but I do think that we can gather enough information through the exposure draft process to get me to the point when we do have to vote on a final ASU to conclude that I have sufficient information at that point to make an informed decision,” she said.

Project Started 10 Years Ago

The project was added to the board’s agenda under a prior FASB composition in May 2014 and a proposal was issued about seven years later to solicit public comment. Subsequently, in 2022 the board renamed the project Interim Reporting —Narrow-Scope Improvements to communicate the objective more clearly.

The aim of the project is to eliminate inconsistency in terminology that is being used to describe the frequency of disclosures existing in the guidance today, the discussions indicated. This comes because both financial statement preparers and practitioners noted challenges in practice regarding the lack of a consistent method of identified interim disclosure requirements. The project has been tricky for the FASB for various reasons, including that board members have not always agreed on how to approach the topic, the discussions signalled.

“Ultimately, I think the one thing we all agreed on was ‘we had a problem’ which was we have a codification where to be fair we were expecting people to go and read our cod and apply it but we didn’t know what was required on an interim basis, which seems like an awfully awkward spot for a standard-setter to be,” Chair Richard Jones said. “So as I looked at this, I viewed this as ‘we have 50 years of our guidance; we have pre-FASB guidance; we have AICPA guidance, they all got crammed together, they all use different terms’ and there were tensions in each of those standards on whether or not a disclosure was required on an interim or an annual basis, and we used all those different terms and we had effectively lost control of it,” he said. “One of the benefits of an exposure draft at this point in time is that I think that we will get input from others, ‘was there evidence that we missed or did we misinterpret evidence?’ and I think we’re all going into that with our eyes wide open and just trying to understand is there something we missed.”