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:
Exposure Draft

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.

Project History:
  • 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–June 2020
  • Public hearing held: July 2020
  • Redeliberations began: September 2020
  • Revised Exposure Draft issued: July 2021
  • Comment period: July–September 2021
Current Developments: In June 2021, the Board issued a Revised Exposure Draft of a Proposed Concepts Statement, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements. The comment period ends October 15, 2021.

Work Plan:
 
Board Meetings Topics to Be Considered
September–
October 2021:
Comment period continues.
November 22, 2021 Redeliberations: Summary of feedback from comment letters.
January 3, 2022 Redeliberations: Purpose of notes and users of notes.
February 16, 2022 Redeliberations: Essentiality.
March 28, 2022 Redeliberations: Other criteria for notes, reporting units and notes.
May 9, 2022: Discuss preballot draft of a final Concepts Statement.
June 20, 2022: Discuss ballot draft of a final Concepts Statement and consider for approval.
 

Conceptual Framework: Disclosure Framework—RECENT MINUTES


Minutes of Meetings, June 30–July 2, 2021
 
The Board reviewed a ballot draft of the Revised 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 six to one to approve the issuance of the Revised Exposure Draft.

Minutes of Meetings, May 20–21, 2021
 
The Board reviewed a preballot draft of a Revised 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 a Revised Exposure Draft of a proposed Concepts Statement.
 
Next, the Board discussed the characteristics of the financial information that would be included in a Revised Exposure Draft. The Board tentatively agreed that the proposed concepts in the Revised Exposure Draft would meet all the characteristics of Group 1 and, therefore, are within the scope of the GASB’s authority.
 
Finally, the Board discussed considerations related to the benefits and costs of the tentative decisions reached related to notes to financial statements established using the proposed Concepts Statement. The Board tentatively decided that the expected benefits of notes to financial statements established by utilizing the proposed concepts will justify the perceived costs of implementation and ongoing compliance.

Minutes of Meetings, April 6–7, 2021

The Board reviewed a preballot draft of a final Concepts Statement, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements. The Board discussed its tentative decisions related to the concept of essentiality, specifically with regard to (1) the depth or breadth of users that utilize or would utilize information in notes to financial statements in their analysis for making decisions or assessing accountability and (2) essential information having or being expected to have a meaningful effect on users’ analyses for making decisions or assessing accountability. Based on this discussion, the Board voted to re-expose the proposed concepts in an Exposure Draft.
 
The Board agreed that this re-exposure does not establish a precedent that if a Board member has not presented an alternative view in an Exposure Draft but is considering dissenting from a final Statement, re-exposure is necessary. The Board noted that the decision for re-exposure pertains to unique facts and circumstances that should not be applied as a precedent in future, similar situations. The circumstances in this case include, but are not limited to the following: (1) the concept of essentiality is the most significant element of the proposed Concepts Statement, (2) users (who are notably the most difficult for the Board to obtain input from) are uniquely impacted by the proposed determination of essentiality, and (3) comments heard from user members at the April 6 meeting of the Governmental Accounting Standards Advisory Council indicated some concern with the proposed definition of essentiality.
 
The Board then agreed to move forward with a preballot draft of a revised Exposure Draft of a proposed Concepts Statement, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements.

Minutes of Meetings, February 24–26, 2021

The Board continued redeliberations on the Disclosure Framework project by discussing concepts related to notes to financial statements and reporting units.
 
The Board first discussed whether a final Concepts Statement should include the description of a reporting unit from Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, in the concepts themselves. The Board tentatively decided that a final Concepts Statement should not include that description.

Next, the Board discussed whether a final Concepts Statement should include examples of how the reporting unit concept should be applied to a particular circumstance. The Board tentatively decided that those examples should not be included.
 
The Board then discussed whether the concept related to notes to financial statements and reporting units (paragraph 13 of the Exposure Draft) should be modified by deleting the phrase “at a minimum” from the last sentence. The Board tentatively decided that this phrase should be removed.
 
Minutes of Meetings, January 1214, 2021

The Board continued redeliberations on the Disclosure Framework project by discussing concepts related to essentiality and cost-benefit analysis.
 
The Board first discussed whether the concept of essentiality should be modified to provide that, in order for information to be essential,  there be a breadth or depth of users that utilize or would utilize the information in their analyses for making decisions or assessing accountability. The Board tentatively decided that the concept of essentiality should be modified accordingly.
 
Next, the Board discussed whether the concept of essentiality should be modified to provide that, in order for information to be essential, information have or be expected to have a meaningful effect on users’ analyses for making decisions or assessing accountability. The Board tentatively decided that the concept of essentiality should be modified accordingly.
 
The Board then discussed whether the concepts related to essentiality should be modified to provide that professional judgment may be necessary to determine whether information (1) is or would be utilized by users in their analyses for making decisions or assessing accountability, (2) is utilized by a breadth or depth of users in those analyses, and (3) has a meaningful effect on those analyses. The Board tentatively decided that the concepts related to essentiality should be modified to provide that those types of professional judgment may be necessary.
 
The Board also discussed whether the proposals related to reviewing the expected benefits and perceived costs of proposed note disclosures separately from (and in addition to) the overall analysis of expected benefits and perceived costs should be carried forward to a final Concepts Statement. The Board tentatively decided that those proposals should not be carried forward to a final Concepts Statement.
 
The Board concluded by discussing whether any other modifications were needed to the proposed concepts related to essentiality and expected benefits and perceived costs. The Board tentatively decided not to include any other modifications.

Minutes of Meetings, December 13, 2020

The Board continued redeliberations of the Disclosure Framework project by discussing concepts proposed in the Exposure Draft related to the types of information appropriate or not appropriate for notes to financial statements.

The Board began by discussing whether the proposed concept of “information about financial position or inflows and outflows of resources that does not meet the criteria for recognition” included in paragraph 9c as a type of information appropriate for inclusion in notes to financial statements should be carried forward to a final Concepts Statement and whether the explanation of the concept should include examples. The Board tentatively decided that this proposed concept should be carried forward to a final Concepts Statement without examples of such information.

Next, the Board discussed whether the proposed concept of “other finance-related information associated with the accountability of the government” included in paragraph 9d as a type of information appropriate for inclusion in notes to financial statements should be carried forward to a final Concepts Statement. The Board tentatively decided to carry forward that concept.

Following this tentative decision, the Board discussed whether the proposed concept of “general or educational information that is not specific to the government,” included in paragraph 10c as a type of information not appropriate for inclusion in notes to financial statements should be carried forward to a final Concepts Statement, and the Board tentatively decided that the concept should be carried forward.

Finally, the Board discussed whether the remaining proposed concepts related to the types of information in notes to financial statements (paragraph 9 of the Exposure Draft) and types of information not appropriate for notes to financial statements (paragraph 10 of the Exposure Draft) should be carried forward to a final Concepts Statement. The Board tentatively decided that those concepts should be carried forward.

Minutes of Meetings, October 20–22, 2020
 
The Board continued redeliberations on the Disclosure Framework project by discussing concepts related to the users of notes to financial statements. The Board first discussed the concept proposed in the Exposure Draft that users of notes to financial statements should have a higher level of responsibility for obtaining a fundamental understanding of governmental financial reporting and for applying that knowledge in their decisions or assessments, as described in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements. The Board tentatively decided to carry forward that proposed concept.

Next, the Board discussed whether the concept proposed in paragraph 8 of the Exposure Draft related to users of notes to financial statements should be expanded to include responsibility for obtaining a reasonable understanding of governmental accounting and budgeting in a final Concepts Statement. The Board tentatively decided that the concept should not be expanded.

Then, the Board discussed whether the concept proposed in paragraph 8 of the Exposure Draft related to users of notes to financial statements should specifically describe users as “knowledgeable” in a final Concepts Statement. The Board tentatively decided that the final Concepts Statement should not specifically describe users as “knowledgeable.”

The Board also discussed whether the concept proposed in the Exposure Draft that users of notes to financial statements are responsible for (a) obtaining a reasonable understanding of government and public finance activities and of the fundamentals of governmental financial reporting, (b) studying the information with reasonable diligence, and (c) applying relevant analytical skills should be carried forward to a final Concepts Statement, and the Board tentatively decided that the concept should be carried forward.

The Board concluded by discussing the concept of essentiality and specifically, the Board’s evaluation of evidence of essentiality. This discussion was not intended to serve as a redeliberation of concepts related to essentiality. No tentative Board decisions were made related to this concept.

Minutes of Meetings, September 8–10, 2020

The Board began redeliberations by discussing the scope of the proposed Concepts Statement on note disclosures as well as the purpose of notes to financial statements.

The Board first discussed whether the scope of a final Concepts Statement should be revised to include concepts related to materiality within the context of the disclosure framework. The Board tentatively decided that the scope of a final Concepts Statement should not be revised to include concepts related to materiality within the context of the disclosure framework. The Board then discussed whether the scope of a final Concepts Statement should be revised to include concepts related to understandability. The Board tentatively decided that the scope of a final Concepts Statement should not be revised to include concepts specifically related to understandability.

Next, the Board discussed whether the proposed concept that the purpose of notes to financial statements is to provide information that explains, describes, or supplements the financial statements and that notes are integral to the basic financial statements should be carried forward to a final Concepts Statement. The Board tentatively decided to carry forward this concept to a final Concepts Statement.

Following this tentative decision, the Board discussed whether the concept describing the purpose of notes to financial statements in a final Concepts Statement should be modified to replace “accountability” with “financial accountability.” The Board tentatively decided that the concept describing the purpose of notes to financial statements should not replace “accountability” with “financial accountability.” Furthermore, the Board discussed whether the concept that the purpose of notes to financial statements is to provide information that is essential to users in assessing accountability should be carried forward to a final Concepts Statement. The Board tentatively decided that this concept should be carried forward to a final Concepts Statement.

Finally, the Board addressed whether the concept associated with the purpose of notes to financial statements in paragraph 7 of the Exposure Draft that includes that information in notes is “essential to users in making economic, social, or political decisions” should be carried forward to a final Concepts Statement. The Board tentatively decided that the concept described above associated with the purpose of notes to financial statements in paragraph 7 of the Exposure Draft should be carried forward to a final Concepts Statement.

Minutes Archive
 

Conceptual Framework: Disclosure Framework—TENTATIVE DECISIONS TO DATE


The Revised 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 June 2021.