FASB Drops Materiality Project
After two years of controversy, the Financial Accounting Standards Board (“FASB”) is scrapping plans to continue work on its proposal to amend the definition of materiality. The project, which commenced in September 2015, set out to align U.S. GAAP’s meaning of materiality with the legal interpretation regulators and courts use so companies can carefully decide their disclosures in financial statement footnotes. Work on the materiality amendments ended Wednesday, November 8.
Board members did not expect to receive criticism for Proposed Accounting Standards Update No. 2015-310, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material. Wall Street investors led the blowback, with many saying the proposed changes gave companies too much leverage in deciding what information to disclose on, or omit from, their financial statements. As FASB Vice Chairman James Kroeker acknowledged, the investors’ viewpoint reflected the “If it’s not broke, don’t fix it” cliché.
On the same day the FASB ended the materiality project, it unanimously agreed to use the materiality definition under Concepts Statement No. 2, Qualitative Characteristics of Accounting Information. The board said CON No. 2 has a materiality definition consistent with the one used by the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and the American Institute of Certified Public Accountants.