FASB to Align Materiality Definition with Other Organizations
The Financial Accounting Standards Board (“FASB”) has finalized a two-part plan that involves returning to an older definition of “materiality.” At its March 21 meeting, the board agreed to use the materiality definition stated in Statement of Financial Accounting Concepts (“CON”) No. 2, Qualitative Characteristics of Accounting Information, and add an internal guide to its Concepts Statements to help produce consistent requirements for new U.S. GAAP disclosures. According to the FASB, the concept of materiality under CON No. 2 aligns with the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and the American Institute of Certified Public Accountants.
Also at the meeting, the FASB scrapped plans to update Topic 235, Notes to Financial Statements. The controversial proposal aimed to help companies determine when specific information needs to be disclosed in a footnote. Guidance from Proposed Accounting Standards Update (“ASU”) No. 2015-310, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, was rejected after investors said companies would be able to exclude essential information from footnotes. Companies also grew less keen on the proposal after realizing it would not help reduce costs. Proposed ASU No. 2015-310 is no longer part of the board’s active agenda.