Disclosure Framework Entity s Decision Process Tentative Board Decisions to Date As of March 21, 2018

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1 The is provided for the information and convenience of constituents who want to follow the Board s deliberations. All of the conclusions reported may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Accounting Standards Update. The Entity s Decision Process is intended to promote the use of discretion by reporting entities when evaluating the requirements as set forth by the Board. Field Study Results and Next Steps Flexible Disclosure Requirements The Board discussed (1) results from the field study that was conducted to better understand the use of discretion in notes to the financial statements and (2) next steps on the basis of the field study findings including assessing fair value measurement disclosures. The Board made no technical decisions. The Board decided that the disclosure Section in a Topic: 1. Would state that an entity should provide the disclosures to the extent material 2. Would not include language that limits the use of discretion (for example, An entity shall at a minimum provide ) 3. Would include a reference to Topic 235, Notes to Financial Statements. The Board also would modify the Topic to provide additional guidance on applying materiality to note disclosures. That guidance would include: a. Materiality is applied to disclosures individually and April 4, 2014 February 18,

2 in the aggregate; therefore, some, all, or none of the requirements in a disclosure Section may be material. b. A disclosure is material if it meets the U.S. Supreme Court s description of materiality, which comes from court cases and interpretations. c. Consistent with the U.S. Supreme Court s description, qualitative and quantitative disclosures generally should be evaluated as material based on whether there is a substantial likelihood that the omitted disclosure would have been viewed by a reasonable user as having significantly altered the total mix of information made available in making a decision. d. If an entity does not provide a GAAP disclosure because management has concluded that the information is not material, the omission should not be considered an accounting error. The Board decided that although materiality is a legal concept that varies by jurisdiction, the guidance would not explicitly acknowledge those variances. Additional Outreach with Auditors, Costs and Benefits, Transition, and Comment Period/Permission to Ballot The Board discussed additional outreach performed by the staff following the decisions reached at the February 18, 2015 Board meeting. The Board concluded that it has received sufficient information and analysis to inform its decisions about the proposed changes and that all of the relevant issues related to this phase of the project have been April 22,

3 addressed. The Board decided, subject to what else it will learn through public exposure, that the expected benefits of the proposed changes justify the perceived costs of change. The Board decided that the proposed changes would be effective upon issuance. The proposed changes would be applied prospectively with the option for retrospective application. The Board decided to send out for external review a draft of its decisions on this phase of the project. The Board will discuss any substantive comments received on the external review draft at a future Board meeting. External Review Summary, Transition, and Permission to Ballot The Board discussed external review comments received on the forthcoming proposed amendments to Chapter 3, Qualitative Characteristics of Useful Financial Information, of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting (Chapter 3 of Concepts Statement 8). The Board decided that the proposed amendments would include the following: July 29, A statement that materiality is a legal concept 2. Information on how a legal concept is established and may be changed (including references to legislative, executive, or judicial action) 3. A summary of the current definition of materiality. 3

4 Comment Letter Summary The Board also discussed external review comments received on the proposed Accounting Standards Update on Topic 235, Notes to Financial Statements. The Board decided on the following: 1. That the FASB Accounting Standards Codification state that materiality is a legal concept 2. To include in the basis for conclusions of the proposed Update a discussion of materiality consistent with the decisions reached on the forthcoming proposed amendments to Chapter 3 of Concepts Statement 8. The Board directed the staff to draft guidance in a proposed Accounting Standards Update and a proposed amendment to Chapter 3 of Concepts Statement 8 for vote by written ballot, with a comment periods of 75 days for both documents. The Board discussed a summary of comments received on the proposed Accounting Standards Update, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, and the proposed amendments to FASB Concepts Statement, Conceptual Framework for Financial Reporting: Chapter 3 Qualitative Characteristics of Useful Financial Information. The Board also discussed next steps for the project. The Board made no technical decisions. July 29, 2015 March 2,

5 Public Roundtable The Board reviewed a summary of comments received on the proposed Accounting Standards Update, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, and the proposed amendments to FASB Concepts Statement, Conceptual Framework for Financial Reporting: Chapter 3 Qualitative Characteristics of Useful Financial Information. The Board also discussed the objectives for a public roundtable meeting on the disclosure framework. The Board plans to schedule a public roundtable meeting to discuss the disclosure framework entity s decision process and the Board s decision process using the disclosure reviews on four topics (fair value measurement, defined benefit plans, income taxes, and inventory). Redeliberations The Board decided to: December 14, 2016 November 8, Amend the current definition of materiality in Chapter 3, Qualitative Characteristics of Useful Financial Information, of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting, with language similar to that of the definition in FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information (superseded). 2. Remove the reference to materiality as a legal concept in Concepts Statement 8 and in Topic 235, Notes to Financial Statements. 5

6 The Board also decided not to add language to Concepts Statement 8 that indicates that the definition of materiality may change. Redeliberations The Board made the following decisions: The Board decided to keep the definition of materiality included in the staff s draft of Chapter 3 consistent with FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information and to leave the discussion of the nature of the item in subsequent paragraphs. The Board decided to not incorporate any additional content from Concepts Statement 2 into the amendments to Chapter 3. The Board directed the staff to draft the final amendments to Chapter 3 for vote by written ballot. The Board decided to not amend Topic 235 and therefore, not reference those amendments in the Disclosure Sections of the Codification. March 21, 6

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