The FASB’s current Disclosure Framework Project was initiated in response to recommendations from various investor groups and the SEC Advisory Committee. One of the groups to reach out to the FASB was the Investors Technical Advisory Committee. In reading through their 2007 letter, they state as part of their rationale:

“In our view, our proposal can also minimize financial reporting arbitrage, because pertinent information will be disclosed in the notes rather than hidden behind the numbers. We believe if investors were informed about a particular risk or an economic position (whether as part of the basic financial presentation or the disclosures); the unfortunate high level of financial reporting engineering that we currently observe will likely diminish.”

The first sentence here almost seems to imply that they value qualitative disclosure in the notes more than the financial statement numbers. Obviously, those two components are viewed as complementary of each other but much prior research has suggested that users’ judgments are impacted less by disclosure than recognition for a variety of proposed reasons (e.g. it is less accessible; its presence in a disclosure implies it is less important; it was likely not audited with the precision as recognized statements, etc.). Does this idea still hold or is that starting to change and if so, what is driving it (e.g. business complexity; investors becoming more motivated to search for information; etc.)? Food for thought…