Project Pages

Conceptual Framework: Disclosure Framework

Project Description: The objective of this project is to develop concepts related to a framework for the development and evaluation of notes to financial statements for the purpose of improving the effectiveness of note disclosures in government financial reports. The framework will establish criteria for the Board to use in evaluating potential note disclosure requirements during future standards-setting activities and in reexamining existing note disclosure requirements. Those concepts also will provide governments a basis for considering the essentiality of information items for which the GASB does not specifically provide authoritative disclosure guidance.

Status:
Initial Deliberations: October 2018

Conceptual Framework: Disclosure Framework—Project Plan
 

Background: Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, describes a hierarchy for determining the appropriate communication method for conveying information. For a particular item of information, disclosure in notes to basic financial statements is secondary as a communication method to recognition in basic financial statements. Further, notes to financial statements are described as integral to financial statements and essential to a user’s understanding of financial position or inflows and outflows of resources.
 
As a first step prior to reexamining note disclosures in existing authoritative guidance that were included in the pre-agenda research, the project primarily is intended to elaborate on the concept of essentiality as it relates to notes to financial statements. That will be accomplished by identifying and defining characteristics or criteria that would be considered when evaluating whether a specific item of information is essential and what it is essential to. Potential topics to be considered in a note disclosure framework project include:
  • Purpose of note disclosures, including user needs related to note disclosures
  • Characteristics of essentiality
  • Limitations of note disclosures
  • Presentation and format of note disclosures, including consideration of the location of the information within the note disclosure section
  • Consideration of note disclosures individually and as a whole.  
The objective of the pre-agenda research was to evaluate whether currently required note disclosures are sufficiently meeting the information needs of the users of state and local government financial reports. One of the specific research questions was whether Concepts Statement 3 provided a sufficient framework for establishing disclosure requirements. That aspect of the research was not the subject of specific questions posed during the research activities but nevertheless is informed by the research results. Some stakeholders that participated in the research believe that note disclosures as a whole are too long and detailed, diminishing the usefulness of those disclosures. That view contrasts with the comments of many of the users, preparers, and auditors participating in the pre-agenda research stating that the individual disclosures that they were asked about are valuable to the users of government financial statements and should be retained. That disparity in viewpoints may indicate a lack of clarity and consistency in the determination of essentiality in existing note disclosures, which could be addressed by a more robust note disclosure framework.
 
Note disclosures represent a fundamental component of the information that financial statement users rely on to make decisions related to a government’s financial health, as well as to assess whether governments have been fiscally and operationally accountable. Prior to the pre-agenda research, the GASB had not conducted a comprehensive review of note disclosures since 1997, which led to the development of Statement No. 38, Certain Financial Statement Note Disclosures, issued in June 2001. Many note disclosure requirements were established prior to the issuance of Concepts Statement 3 in April 2005, notably including disclosures in NCGA Interpretation 6, Notes to the Financial Statements Disclosure, and Statement No. 40, Deposit and Investment Risk Disclosuresan amendment of GASB Statement No. 3. Additionally, there have been numerous significant note disclosures established since the issuance of Concepts Statement 3, including those in Statement No. 53, Accounting and Financial Reporting for Derivative Instruments; Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions; Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27; and Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions.

Accounting and Financial Reporting Issues. The project will develop concepts in a disclosure framework that further clarifies the notion of essentiality. Those concepts will be intended to support the Board in its consideration of new note disclosure requirements in future standards setting activities, as well as assist in the evaluation of existing note disclosure requirements in reexamination projects. This approach is based on first addressing foundational issues in a disclosure framework (this proposed project), before bringing subsequent project prospectuses to the Board related to reexaminations of specific note disclosure topics.
 
The deliberations involved in developing a note disclosure framework will include “testing” the new concepts with certain existing disclosures to gauge their effectiveness. That activity will not be actual standards setting but, rather, a pro forma application of the tentative concepts in the framework.

Project History:
  • Added to current technical agenda: August 2018
  • Task force established? Yes
  • Deliberations began: October 2018
  • Task force meeting held: June 2019
Current Developments: In June 2019, the Task Force met to provide feedback on the Board’s tentative decisions on the proposed concepts for the disclosure framework. The Board discussed in July whether it was appropriate to include concepts related to note disclosure presentation and format in the framework. Stakeholder outreach related to the determination of whether the tentative characteristics of essentiality concepts were operational in the context of standards setting was conducted in June and July. The Board reviewed and discussed the results of that outreach at its August 2019 meeting.

Work Plan:
 
Board Meetings Topics to Be Considered
November 2019: Discuss draft of a Concepts section of an Exposure Draft.
January 2020: Discuss preballot draft of an Exposure Draft of a proposed Concepts Statement.
February 2020: Discuss ballot draft of an Exposure Draft of a proposed Concept Statement and consider for approval.
March–May 2020: Comment period.
May 2020: Public hearings.
June 2020–December 2020: Redeliberate issues based on due process feedback.
January 2021: Discuss preballot draft of a final Concepts Statement.
March 2021: Discuss ballot draft of a final Concepts Statement and consider for approval.
 

Conceptual Framework: Disclosure Framework—RECENT MINUTES


Minutes of Meeting, October 15–17, 2019
 
The Board began deliberations by discussing how the proposed Concepts Statement communicates the relationship between the notes to financial statements and the financial statements themselves. The Board discussed whether the proposed Concepts Statement should explicitly include a proposed concept that the notes to financial statements are essential to users’ understanding of financial position or inflows and outflows of resources and tentatively decided not to include this proposal. The Board continued by further discussing the purpose of note disclosures and whether the proposed purpose effectively communicates the general relationship of the notes and the financial statements. The Board tentatively decided that “explain, describe, or supplement the financial statements” in combination with the description that the notes are integral to the financial statements describes the proposed general relationship of the notes to financial statements.
 
The Board then discussed the appropriate level of detail at which information should be presented for the notes to financial statements. The Board tentatively decided to propose that notes to financial statements provide information at a level of detail consistent with the reporting units presented in the financial statements.

Minutes of Meeting, August 2728, 2019

The Board began deliberations by discussing the feedback from outreach conducted with financial statement users regarding their use of certain note disclosures and the operability of the proposed characteristics of essentiality. The Board tentatively decided that the characteristics of essentiality, in terms of obtaining evidence of use at the individual disclosure level, are operational.
 
The Board then discussed whether the number of users or user types that provide evidence of an individual note disclosure’s use should impact the assessment of whether that evidence is sufficient to establish the existence of the characteristics of essentiality. The Board tentatively decided that the number of users or user types utilizing information for decision making or assessing accountability should not impact the sufficiency of the evidence of use.
 
Finally, the Board discussed modifications to characteristic A to remove the phrases “regardless of source” and “currently.” The Board tentatively decided to modify characteristic A to: “Evidence that the information is being utilized in users’ analyses for decision making or assessing accountability.”

Minutes of Meeting, July 16–18, 2019

The Board began by discussing feedback from the June 2019 Note Disclosure Framework Task Force meeting. The Board reviewed the feedback received on the project objective and scope, users of the notes to financial statements, general purpose of note disclosures, types of information included in note disclosures, types of information inappropriate for note disclosures, characteristics of essentiality and the level of detail to which they should be applied, and the cost-benefit evaluation. Board members provided additional observations that will be further considered in future deliberations.
 
The Board then discussed whether concepts related to presentation and format of note disclosures should be included in the note disclosure conceptual framework. The Board tentatively decided not to develop proposed concepts related to presentation or format of notes to financial statements in the note disclosure conceptual framework.

Minutes of Task Force Meeting, June 4, 2019

The task force provided feedback on tentative Board decisions related to the disclosure framework. The task force first discussed the background of the project, including the objective, scope, and existing conceptual literature related to the notes to financial statements. Task force members generally agreed with the project objective of developing a disclosure framework to improve consistency and effectiveness of note disclosures. Some task force members noted that the role of a disclosure framework is important as technology continues to evolve in its impact on financial reporting.

The task force members then discussed concepts related to the users of note disclosures. Some task force members provided feedback about the appropriate level of understanding that users are responsible for obtaining. Other task force members suggested defining or further clarifying the term reasonable understanding, which is used in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements.

Next, the task force members discussed the purpose of note disclosures, the types of information that are appropriate for inclusion in the notes to financial statements, and the types of information that are inappropriate for inclusion. In general, task force members agreed with the purpose of the notes as a source of information for decision making and assessing accountability. Some task force members raised concerns that the purpose may be too broad. Other task force members questioned whether the types of information appropriate for the notes, especially the information associated with the accountability of the government, would lead to the inclusion of subjective information in note disclosures. In discussing types of general or educational information that should be included in the notes, task force members’ views were mixed about whether it was appropriate for governments to include general or educational information that was not specific to the government in the notes.

The task force members discussed the concept of essentiality as the degree of importance that the information in the note disclosures should possess. Members generally agreed that essential is an appropriate term to convey that level of importance. Members then provided feedback on the proposed characteristics that indicate the information is essential: evidence that users currently use the information or users would incorporate the information into their analyses if it became available for making decisions or assessing accountability. Some task force members expressed concerns that the essentiality characteristics were too broad or lacked clarity in the magnitude of evidence required. Other task force members suggested that a cost-benefit evaluation for note disclosures should be assessed at a more detailed level.

Finally, the task force members discussed future deliberations and the project timeline. Task force members generally were in agreement with the project plan.

Minutes of Meeting, April 22–24, 2019

The Board discussed the evaluation of costs and benefits in the establishment of requirements related to notes to financial statements. The Board tentatively decided that the costs and benefits for note disclosures should be considered separate from (and in addition to) an analysis that considers costs and benefits of a Statement as a whole.

To provide additional context for this tentative conclusion, the Board considered varying levels of detail at which to conduct a cost-benefit analysis in the establishment of note disclosures. The Board tentatively decided that the costs and benefits of proposed note disclosures should be considered as a whole for a Statement in all cases. In addition, the Board discussed cases in which cost-benefit considerations may be necessary at the individual disclosure level. The Board tentatively decided that the costs and benefits of proposed note disclosures should be considered at the individual disclosure level when appropriate, based on stakeholder feedback and the type of information that is being assessed.

Minutes of Meeting, March 13, 2019

The Board discussed the concept of essentiality as it relates to information in the notes to financial statements. The Board tentatively decided that a more distinctive criterion, beyond the objectives of financial reporting and the qualitative characteristics contained in Concepts Statement No. 1, Objectives of Financial Reporting, is needed to define or describe information presented in the notes to financial statements.

The Board then discussed which term would be most appropriate to convey the degree of importance intended for information included in the notes to financial statements. The Board tentatively decided that the term essential continues to be the most appropriate to convey the intended degree of importance.

Next, the Board discussed the characteristics of essentiality. The Board tentatively decided to propose that information is essential if it has either of the following characteristics:

  • Characteristic A: Evidence that the information, regardless of its source, currently is being utilized in users’ analyses for decision making or assessing accountability
  • Characteristic B: Evidence that if the information becomes available, users would modify their analyses for decision making or assessing accountability to incorporate that information.

Finally, the Board tentatively decided to propose that evidence supporting the determination of the characteristic be applied to individual pieces of information such that individual disclosures required by a final GASB pronouncement have Characteristic A or Characteristic B.

Minutes of Meetings, January 29–31, 2019
 
The Board discussed information that generally is not appropriate for note disclosures. The Board tentatively decided that existing descriptions of information that should not be included in note disclosures should be retained. As described in paragraph 37 of Concept Statement 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, these include subjective assessments of the effects of reported information on the reporting unit’s future financial position or predictions about the effects of future events on future financial position.
 
In addition, the Board tentatively decided to propose that information that should not be included in notes be clarified so that expectations and assumptions about the future that are inputs to current measures in the financial statements or note disclosures are not excluded from the note disclosures.
 
Finally, the Board tentatively decided to propose that general information that is specific to the government and is easily obtainable from other sources not be included as information that is inappropriate for note disclosures, whereas general or educational information that is not specific to the government should be included as information that is inappropriate for note disclosures.

Minutes of Meetings, December 17–19, 2018

The Board discussed the purpose of note disclosures and tentatively decided that their purpose is to provide information that is essential to users that explains, describes, or supplements the financial statements in order to assist users in making economic, social, and political decisions and assessing accountability. The Board also tentatively decided that the types of information provided by the notes include:

  • Descriptions of the accounting and finance-related policies underlying amounts recognized in financial statements
  • More detail about or explanations of amounts recognized in financial statements
  • Additional information about financial position or inflows and outflows of resources that does not meet the criteria for recognition
  • Other finance-related information associated with the accountability of the government.

Minutes of Meetings, November 14–16, 2018

The Board initiated deliberations by affirming that notes to financial statements meet (or help meet) all of the objectives of financial reporting described in Concepts Statement No. 1, Objectives of Financial Reporting, and that the users of note disclosures are responsible for obtaining a reasonable understanding of governmental financial reporting as described in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements. The Board also tentatively decided that the scope of the project should focus on developing concepts that expand or elaborate on the portion of Concepts Statement 3 that relates to the notes to financial statements.

The Board tentatively decided that the following should be included in the scope of the project:

  • The purpose of note disclosures
  • The limitations of note disclosures
  • The characteristics of essentiality
  • The presentation and format of note disclosures, including the location of the information within the note disclosures section
  • The consideration of note disclosures individually and as a whole
  • The level of detail for note disclosures.

The Board also tentatively decided that the development of concepts related to materiality should be excluded from the scope of the project.

Minutes Archive

Conceptual Framework: Disclosure Framework—TENTATIVE DECISIONS TO DATE


The Board tentatively decided to propose the following:
  • Users of the basic financial statements should be responsible for obtaining a reasonable understanding of governmental financial reporting, as described in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements.
  • The notes to financial statements should meet (or help meet) all of the objectives of financial reporting described in Concepts Statement No. 1, Objectives of Financial Reporting.
  • The project scope should focus on concepts related to the notes to basic financial statements by expanding or elaborating on the portion of Concepts Statement 3 that relates to the notes to financial statements.
  • The following topics should be considered in the scope of the project:
    • The purpose of note disclosures
    • The limitations of note disclosures
    • The characteristics of essentiality
    • The presentation and format of note disclosures, including the location of the information within the note disclosures section
    • The consideration of note disclosures individually and as a whole
    • The level of detail for note disclosures.
  • The development of concepts related to materiality should be excluded from the scope of the project.
  • The purpose of note disclosures is to provide information that explains, describes, or supplements the financial statements and is essential to users in making economic, social, and political decisions and assessing accountability. Notes are integral to the financial statements. The types of information provided by notes include:
    • Descriptions of the accounting and finance-related policies underlying amounts recognized in financial statements
    • More detail about or explanations of amounts recognized in financial statements
    • Additional information about financial position or inflows and outflows of resources that does not meet the criteria for recognition
    • Other finance-related information associated with the accountability of the government.
  • Existing descriptions of types of information that should not be included in note disclosures, as stated in paragraph 37 of Concepts Statement 3, should be retained, including:
    • Subjective assessments of the effects of reported information on the reporting unit’s future financial position
    • Predictions about the effects of future events on future financial position.
  • The types of information that should not be included in note disclosures should clarify that expectations and assumptions about the future that are inputs to current measures in the financial statements or note disclosures should not be excluded from the note disclosures.
  • General information that is specific to the government and is easily obtainable from other sources should not be included as information that is inappropriate for note disclosures.
  • General or educational information that is not specific to the government should be included as information that is inappropriate for note disclosures.
  • A more distinctive criterion, beyond the objectives of financial reporting and the qualitative characteristics contained in Concepts Statement 1, is needed to define or describe information presented in the notes to financial statements.
  • The term essential is most appropriate to convey a degree of importance.
  • Information that has one of the following characteristics is essential:
    • Characteristic A: Evidence that the information is being utilized in users’ analyses for decision making or assessing accountability.
    • Characteristic B: Evidence that if the information becomes available, users would modify their analyses for decision making or assessing accountability to incorporate that information.
  • Evidence supporting the determination of the characteristic of essentiality should be applied to individual pieces of information such that individual disclosures required by a final GASB pronouncement have characteristic A or characteristic B.
  • The number of users or user types utilizing information for decision making or assessing accountability should not impact the sufficiency of the evidence of use.
  • The costs and benefits for note disclosures should be considered separate from (and in addition to) the currently performed analysis that considers costs and benefits of a Statement as a whole.
  • The costs and benefits of proposed note disclosures should be considered at the individual disclosure level when appropriate and should be considered as a whole for a Statement in all cases.
  • Concepts should not be developed related to presentation or format of notes to financial statements.
  • The concept that notes are essential to a user’s understanding of financial position or inflows and outflows of resources should not be retained.
  • The notes to financial statements should provide information at a level of detail consistent with the reporting units presented in the financial statements.