The Financial Accounting Standards Board (FASB) has amended its definition of materiality, in an update to its conceptual framework.
The amendment will ensure that there is consistency with the definition of materiality used by the U.S Securities and Exchange Commission, the auditing standards of the Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants, and the United States judicial system.
The FASB also introduced a new chapter on disclosures to the conceptual framework. The chapter discusses what information the board should consider, including in notes to financial statements discussing the nature of appropriate content and general limitations.
FASB’s chairman Russell G. Golden said: “The two changes to our conceptual framework will help the board identify and evaluate disclosure requirements in accounting standards and clarify the concept of materiality.
“Meanwhile, the new standards improve fair value and defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements, and adding relevant disclosure requirements.”
There were also two Accounting Standards Updates (ASUs) aimed at improving the effectiveness of disclosures in notes to financial statements. The updates are based on fair value measurement and defined benefit plan requirements.
The standard improves the disclosure requirements on fair value measurements and the amendments made are applicable to all organisations for fiscal years and interim periods between those fiscal years, beginning after December 2019.
Improvements have also been made for disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This will be effective for fiscal years ending after December, 2020.