By Dianora Aria De Marco
In July 2009, the FASB added a project to its technical agenda with the goal of establishing an overarching framework to improve the effectiveness of disclosures in notes to financial statements. Unlike typical FASB projects, the Board approached the disclosure framework project by addressing both the disclosure requirement considerations made by the Board as well as by the entity. The Board’s Decision Process is a framework meant to guide the Board during the standard setting process including when establishing disclosure requirements. The Entity’s Decision Process is meant to guide reporting entities when making decisions related to the application of the disclosure requirements which resulted in the September 2015 exposure draft on materiality intended to align the definition of materiality to the legal definition used by the SEC. This exposure draft received significant attention from stakeholders including CCR in its comment letter response.
The Board is reviewing four areas of accounting for the Disclosure Framework project:
Fair Value MeasurementDefined Benefit PlansIncome TaxesInventory
The Board will use each of these topics separately to evaluate existing disclosure requirements, and to consider different approaches to promote the appropriate use of discretion. To date, the FASB has issued four exposure drafts addressing each of these topics. The most recent exposure draft on Inventory was released on January 10, 2017 and the Board is seeking comments from stakeholders by March 17, 2017.
The proposed update Changes to the Disclosure Requirements for Inventory can be found here.
The proposed guidance would significantly expand the required inventory disclosures as it relates to inventory changes and to the composition of inventory balances. Entities that regularly provide segment reporting would also be required to include disclosure of inventory by reportable segment, and by component for each reportable segment. Entities that apply the retail inventory method would now be required to provide additional quantitative and qualitative disclosure of critical assumptions used.
Each of these four projects represents a significant expansion of the disclosure requirements for preparers. FEI’s Committee on Corporate Reporting (CCR) which is comprised primarily of Fortune 100 principal accounting officers and represents approximately $6.5 trillion in market capitalization, has...