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Materiality Proposal Receives Praise and Criticism

Comment letters on the Financial Accounting Standards Board’s (“FASB”) materiality proposal reveal mixed sentiment among companies, investors and consumer groups. Proposed Accounting Standards Update No. 2015-310, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, would establish materiality as a legal concept to help companies determine what information to include in their financial statement footnotes.

Numerous companies have voiced their support of the plan. Comcast Corp., for instance, said the proposed clarification to the definition of materiality would be consistent with the FASB’s efforts of making disclosures more useful for investors. Another supporter, Financial Executives International, commented that the materiality proposal would help eliminate irrelevant information from financial statements.

Conversely, investors and consumer groups believe the plan will provide less information necessary for making informed decisions on investments or nonprofit contributions. The Consumer Federation of America and Americans for Financial Reform also condemned the FASB for characterizing the clarification to materiality a benign change. Audit firms also chimed in on the proposal, remarking that a single definition of materiality cannot apply to every circumstance.

Comments on the materiality proposal were due December 8, 2015.

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