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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 Redeliberations

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 on the Exposure Draft began: September 2020
  • Revised Exposure Draft issued: July 2021
  • Comment period: July–October 2021
  • Redeliberations on the Revised Exposure Draft began: January 2022
Current Developments: In January 2022, the Board began redeliberations 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 by discussing reporting units and types of information not appropriate for notes. In February 2022, the concept of essentiality was discussed by the Board, as well as the purpose of notes, types of information in notes, and the role of perceived costs and expected benefits in notes to financial statements. The Board discussed miscellaneous feedback received in response to the Revised Exposure Draft in March 2022.

Work Plan:
 
Board Meetings Topics to Be Considered
June 20, 2022 Discuss ballot draft of a final Concepts Statement and consider for approval.
 

CONCEPTUAL FRAMEWORK: DISCLOSURE FRAMEWORK—RECENT MINUTES


Minutes of Meetings, May 9, 2022

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, and discussed clarifying edits.

Next, the Board discussed considerations related to benefits and costs associated with notes to financial statements established by utilizing the concepts. The Board tentatively decided that the expected benefits associated with the proposed concepts justify the perceived costs.

The Board then discussed the characteristics of the accounting and financial reporting information that will result from the concepts to be included in a final Concepts Statement. The Board tentatively agreed that the information meets all of the characteristics of Group 1 information and, therefore, is within the scope of the GASB’s authority.

Lastly, the Board directed the project staff to prepare a ballot draft of a final Concepts Statement for discussion at the June 20, 2022 Board meeting.

Minutes of Meetings, March 28, 2022

The Board continued redeliberations on 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. The Board discussed other stakeholder feedback that is not related to specific proposals included in the Revised Exposure Draft. The Board tentatively decided that the concepts proposed in the Revised Exposure Draft should not be modified as a result of the other feedback received.

The Board then agreed to proceed to 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.

Minutes of Meetings, February 16, 2022

The Board continued redeliberations on 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. The Board first discussed whether the proposed concepts related to the purpose of notes to financial statements (paragraph 7 of the Revised Exposure Draft) and the types of information in notes to financial statements (paragraph 9 of the Revised Exposure Draft) should be carried forward to a final Concepts Statement without modification. The Board tentatively decided that those proposed concepts should be carried forward without modification.
 
The Board then discussed whether the proposed concepts related to essentiality (paragraphs 11 and 12 of the Revised Exposure Draft) should be carried forward to a final Concepts Statement. Based on this discussion, the Board tentatively decided that the three characteristics should be retained but should be modified (1) to clarify that the characteristic of use (characteristic 11a) is inherent in the characteristics of meaningful effect and breadth or depth (characteristics 11b and 11c), (2) to clarify that the application of professional judgment in evaluating the characteristics of essentiality includes the consideration of the interplay between those characteristics, and (3) to distinguish between the description of essentiality and the determination of essentiality.
 
Finally, the Board discussed whether the proposed concepts on considerations related to benefits and costs for notes to financial statements (paragraph 15 of the Revised Exposure Draft) should be carried forward to a final Concepts Statement without modification. The Board tentatively decided that those proposed concepts should be carried forward without modification.

Minutes of Meetings, January 3, 2022

The Board began redeliberations on 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. The Board first discussed whether the proposed concepts related to the types of information that are not appropriate for notes to financial statements (paragraph 10 of the Revised Exposure Draft) should be carried forward to a final Concepts Statement without modification. The Board tentatively decided that those proposed concepts should be carried forward without modification. Next, the Board discussed whether the proposed concept related to notes to financial statements and reporting units (paragraph 14 of the Revised Exposure Draft) should be carried forward to a final Concepts Statement without modification. The Board tentatively decided that this proposed concept should be carried forward without modification.

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 Archive
 

CONCEPTUAL FRAMEWORK: DISCLOSURE FRAMEWORK—TENTATIVE DECISIONS TO DATE


The Board tentatively decided the following:
  • The proposed concepts in paragraph 7 of the Revised Exposure Draft related to the purpose of notes to financial statements should be carried forward to a final Concepts Statement without modification.
  • The proposed concepts in paragraph 9 of the Revised Exposure Draft related to types of information in notes to financial statements should be carried forward to a final Concepts Statement without modification.
  • The proposed concepts in paragraph 10 of the Revised Exposure Draft related to the types of information that are not appropriate for notes to financial statements should be carried forward to a final Concepts Statement without modification.
  • The proposed concepts related to the characteristics of essentiality should be retained and should be modified (1) to clarify that the characteristic of use (characteristic 11a) is inherent in the characteristics of meaningful effect and breadth or depth (characteristics 11b and 11c) and (2) to distinguish between the description of essentiality and the determination of essentiality.
  • The proposed concept related to professional judgment should be retained and should be modified to clarify that the application of professional judgment in evaluating the characteristics of essentiality in paragraph 11 includes the consideration of the interplay between those characteristics.
  • The proposed concept in paragraph 14 of the Revised Exposure Draft related to notes to financial statements and reporting units should be carried forward to a final Concepts Statement without modification.
  • The proposed concepts in paragraph 15 of the Revised Exposure Draft related to considerations related to benefits and costs for notes to financial statements should be carried forward to a final Concepts Statement without modification.
  • The expected benefits resulting from note disclosures established by utilizing the concepts proposed to be included in a final Concepts Statement justify the perceived costs.
  • The accounting and financial reporting information that will result from accounting standards established by utilizing the concepts to be included in a final Concepts Statement meets all the characteristics of Group 1 information and, therefore, is within the scope of the GASB's authority.
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