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.
Exposure Draft Approved: February 2020
- Accounting and Financial Reporting Issues
- Project History
- Current Developments
- Work Plan
- Recent Minutes
- Task Force
- Tentative Board Decisions to Date
- Project staff:
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.
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 Disclosures—an 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.
- Added to current technical agenda: August 2018
- Task force established? Yes
- Deliberations began: October 2018
- Task force meeting held: June 2019
- Exposure Draft issued: February 2020
- Comment period: February–April 2020
|Board Meetings||Topics to Be Considered|
|May–June 2020:||Comment period continues.|
|July 2020:||Public hearing.|
|September 2020:||Summary of general feedback from comment letters and public hearing.|
|October 2020:||Redeliberations: purpose of notes to financial statements and users of notes to financial statements.|
|December 2020:||Redeliberations: types of information appropriate and not appropriate for notes to financial statements.|
|January 2021:||Redeliberations: essentiality and cost-benefit analysis.|
|February 2021:||Redeliberations: reporting units and notes to financial statements.|
|April 2021:||Discuss preballot draft of a final Concepts Statement.|
|May 2021:||Discuss ballot draft of a final Concepts Statement and consider for approval.|
Minutes of Meetings, February 11–13, 2020
The Board reviewed a ballot draft of the Exposure Draft of a proposed Concepts Statement, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements, and discussed clarifying edits. The Board then voted unanimously to approve the issuance of the Exposure Draft.
Minutes of Meetings, January 7–9, 2020
The Board reviewed a preballot draft of the Exposure Draft of a proposed Concepts Statement, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements, and discussed clarifying edits. The Board agreed to move forward with a ballot draft of an Exposure Draft for discussion at the February 2020 Board meeting.
Minutes of Meetings, November 20–22, 2019
The Board began by reviewing a draft of the concepts section of an Exposure Draft of a proposed Concepts Statement and discussed clarifying edits.
Next, the Board discussed the characteristics of the financial information that would be included in an Exposure Draft. The Board tentatively agreed that the proposed concepts in the Exposure Draft would meet all of the characteristics in Group 1 and, therefore, are within the scope of the GASB’s authority.
Finally, the Board discussed whether the expected benefits resulting from the application of the proposed concepts justify the perceived costs to preparers and other stakeholders. The Board tentatively decided that the expected benefits associated with the application of the proposed concepts justify the perceived costs of implementation and ongoing compliance of the resulting accounting standards.
The Board agreed that the project staff should prepare a preballot draft of an Exposure Draft for discussion at the January 2020 Board meeting.
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 27–28, 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.
The Exposure Draft of a proposed Concepts Statement, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements, was approved in February 2020.