The FASB announced today the addition of a disclosure framework project to their agenda.  The addition of the project appears to be motivated by feedback the Board received the ITAC and CIFR committees.

In today’s press release, Chairman Bob Herz said:

“Many constituents have expressed concerns about so-called ‘disclosure overload.’  While clear and robust disclosures are essential to informative and transparent financial reporting…improving the way such disclosures are integrated can help decrease complexity.  The Board will embark on this project to create a principles-based disclosure framework that will enable companies to communicate more effectively with investors and also help eliminate redundancy or otherwise outdated GAAP disclosure requirements.”

Among those financial reporting areas that the project will consider are whether the disclosure framework should:

  • apply to all entities or perhaps exclude private or nonprofit entities
  • apply to interim reporting
  • focus only on high-level principles
  • focus only on notes to financial statements or extend to ways to better integrate information provided in financial statements, MD&A, and other parts of a company’s public reporting package

In my opinion, the lack of a disclosure framework has been a longstanding and significant omission from the FASB’s conceptual framework, and I look forward to seeing how this project progresses.

One note of interest is that this project is separate from the FASB’s joint project with the IASB on the conceptual framework and so is likely to result in a standard, rather than a concept statement.  I believe the idea is something similar to SFAS 157, which did not mandate new fair value measurements, but rather unified disparate guidance on fair values across a multitude of existing standards.  In a similar vein, Chairman Herz noted that the objective of the new disclosure project is not intended to be “additive.” As such, I suspect a resulting disclosure standard would unify disparate guidance on disclosures, rather than mandate a whole new set of disclosures.

One last note, given that this project is just beginning, the time for researchers to have a real impact on the outcome of this project is now.  I certainly agree with Fulbier, Hitz, and Sellhorn, when they argue in their recent paper that “it seems crucial that researchers make their contributions as early as possible in the [standard setting] process…so that the input constitutes ex ante research with respect to a give standard-setting issue” (pg. 29).  In fact, I spoke with the project manager today and, while he was aware of a couple papers on disclosure, he assumed there must be more relevant academic research out there, and he seemed eager to learn more.  Now is the time to get involved!

Disclaimer:  The views expressed here are my own and do not represent positions of the Financial Accounting Standards Board.  Positions of the FASB are arrived at only after extensive due process and deliberations.