Project Pages

Conceptual Framework: Disclosure Framework

Project Description: The objective of this project is to develop concepts related to a framework for the development and evaluation of notes to financial statements for the purpose of improving the effectiveness of note disclosures in government financial reports. The framework will establish criteria for the Board to use in evaluating potential note disclosure requirements during future standards-setting activities and in reexamining existing note disclosure requirements. Those concepts also will provide governments a basis for considering the essentiality of information items for which the GASB does not specifically provide authoritative disclosure guidance.

Status:
Initial Deliberations: October 2018

Conceptual Framework: Disclosure Framework—Project Plan
 

Background: Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, describes a hierarchy for determining the appropriate communication method for conveying information. For a particular item of information, disclosure in notes to basic financial statements is secondary as a communication method to recognition in basic financial statements. Further, notes to financial statements are described as integral to financial statements and essential to a user’s understanding of financial position or inflows and outflows of resources.
 
As a first step prior to reexamining note disclosures in existing authoritative guidance that were included in the pre-agenda research, the project primarily is intended to elaborate on the concept of essentiality as it relates to notes to financial statements. That will be accomplished by identifying and defining characteristics or criteria that would be considered when evaluating whether a specific item of information is essential and what it is essential to. Potential topics to be considered in a note disclosure framework project include:
  • Purpose of note disclosures, including user needs related to note disclosures
  • Characteristics of essentiality
  • Limitations of note disclosures
  • Presentation and format of note disclosures, including consideration of the location of the information within the note disclosure section
  • Consideration of note disclosures individually and as a whole.  
The objective of the pre-agenda research was to evaluate whether currently required note disclosures are sufficiently meeting the information needs of the users of state and local government financial reports. One of the specific research questions was whether Concepts Statement 3 provided a sufficient framework for establishing disclosure requirements. That aspect of the research was not the subject of specific questions posed during the research activities but nevertheless is informed by the research results. Some stakeholders that participated in the research believe that note disclosures as a whole are too long and detailed, diminishing the usefulness of those disclosures. That view contrasts with the comments of many of the users, preparers, and auditors participating in the pre-agenda research stating that the individual disclosures that they were asked about are valuable to the users of government financial statements and should be retained. That disparity in viewpoints may indicate a lack of clarity and consistency in the determination of essentiality in existing note disclosures, which could be addressed by a more robust note disclosure framework.
 
Note disclosures represent a fundamental component of the information that financial statement users rely on to make decisions related to a government’s financial health, as well as to assess whether governments have been fiscally and operationally accountable. Prior to the pre-agenda research, the GASB had not conducted a comprehensive review of note disclosures since 1997, which led to the development of Statement No. 38, Certain Financial Statement Note Disclosures, issued in June 2001. Many note disclosure requirements were established prior to the issuance of Concepts Statement 3 in April 2005, notably including disclosures in NCGA Interpretation 6, Notes to the Financial Statements Disclosure, and Statement No. 40, Deposit and Investment Risk Disclosuresan amendment of GASB Statement No. 3. Additionally, there have been numerous significant note disclosures established since the issuance of Concepts Statement 3, including those in Statement No. 53, Accounting and Financial Reporting for Derivative Instruments; Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions; Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27; and Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions.

Accounting and Financial Reporting Issues. The project will develop concepts in a disclosure framework that further clarifies the notion of essentiality. Those concepts will be intended to support the Board in its consideration of new note disclosure requirements in future standards setting activities, as well as assist in the evaluation of existing note disclosure requirements in reexamination projects. This approach is based on first addressing foundational issues in a disclosure framework (this proposed project), before bringing subsequent project prospectuses to the Board related to reexaminations of specific note disclosure topics.
 
The deliberations involved in developing a note disclosure framework will include “testing” the new concepts with certain existing disclosures to gauge their effectiveness. That activity will not be actual standards setting but, rather, a pro forma application of the tentative concepts in the framework.

Project History:
  • Added to current technical agenda: August 2018
  • Deliberations began: October 2018
  • Task force established? Yes
Current Developments:  In October 2018, an educational memorandum was presented that described the work of other standards setters in the development of frameworks for disclosures. In November, the Board discussed and affirmed how the objectives of financial reporting relate to note disclosures and considered the primary users of note disclosures. The scope of the project also was further considered and refined. At its December 2018 meeting, the Board is scheduled to discuss the purpose of note disclosures.

Work Plan:
 
Board Meetings Topics to Be Considered
March 2019: Characteristics of essentiality.
April 2019: Characteristics of essentiality, continued.
June 2019: Task force meeting.
Presentation and format of note disclosures.
July 2019: Consideration of individual note disclosures and note disclosures as a whole.
August 2019: Level of detail for note disclosures.
October 2019: Discuss draft of a Preliminary Views.
November 2019: Discuss draft of a Preliminary Views, continued.
January 2020: Discuss preballot draft of a Preliminary Views.
February 2020: Discuss ballot draft of a Preliminary Views and consider for issuance.
March–May 2020: Comment period.
May 2020: Public hearings and user forums.
June 2020–January 2021: Redeliberate issues based on due process feedback.
January 2021: Task force meeting.
March 2021: Discuss preballot draft of an Exposure Draft of a proposed Concepts Statement.
April 2021: Discuss ballot draft of an Exposure Draft and consider for approval.
May–July 2021: Comment Period.
July 2021: Public hearings.
August 2021–March 2022: Redeliberate issues based on due process feedback.
February 2022: Task force meeting
April 2022: Discuss preballot draft of a final Concepts Statement.
May 2022: Discuss ballot draft of a final Concepts Statement and consider for approval.
 

Conceptual Framework: Disclosure Framework—RECENT MINUTES


Minutes of Meetings, January 29–31, 2019
 
The Board discussed information that generally is not appropriate for note disclosures. The Board tentatively decided that existing descriptions of information that should not be included in note disclosures should be retained. As described in paragraph 37 of Concept Statement 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, these include subjective assessments of the effects of reported information on the reporting unit’s future financial position or predictions about the effects of future events on future financial position.
 
In addition, the Board tentatively decided to propose that information that should not be included in notes be clarified so that expectations and assumptions about the future that are inputs to current measures in the financial statements or note disclosures are not excluded from the note disclosures.
 
Finally, the Board tentatively decided to propose that general information that is specific to the government and is easily obtainable from other sources not be included as information that is inappropriate for note disclosures, whereas general or educational information that is not specific to the government should be included as information that is inappropriate for note disclosures.

Minutes of Meetings, December 17–19, 2018

The Board discussed the purpose of note disclosures and tentatively decided that their purpose is to provide information that is essential to users that explains, describes, or supplements the financial statements in order to assist users in making economic, social, and political decisions and assessing accountability. The Board also tentatively decided that the types of information provided by the notes include:

  • Descriptions of the accounting and finance-related policies underlying amounts recognized in financial statements
  • More detail about or explanations of amounts recognized in financial statements
  • Additional information about financial position or inflows and outflows of resources that does not meet the criteria for recognition
  • Other finance-related information associated with the accountability of the government.

Minutes of Meetings, November 14–16, 2018

The Board initiated deliberations by affirming that notes to financial statements meet (or help meet) all of the objectives of financial reporting described in Concepts Statement No. 1, Objectives of Financial Reporting, and that the users of note disclosures are responsible for obtaining a reasonable understanding of governmental financial reporting as described in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements. The Board also tentatively decided that the scope of the project should focus on developing concepts that expand or elaborate on the portion of Concepts Statement 3 that relates to the notes to financial statements.

The Board tentatively decided that the following should be included in the scope of the project:

  • The purpose of note disclosures
  • The limitations of note disclosures
  • The characteristics of essentiality
  • The presentation and format of note disclosures, including the location of the information within the note disclosures section
  • The consideration of note disclosures individually and as a whole
  • The level of detail for note disclosures.

The Board also tentatively decided that the development of concepts related to materiality should be excluded from the scope of the project.

Minutes of Meetings, October 2–4, 2018

In an educational session, the Board discussed disclosure frameworks of other standards setters and GASB concepts related to note disclosures. No deliberations were conducted, and no decisions were reached.
 

Conceptual Framework: Disclosure Framework—TENTATIVE DECISIONS TO DATE


The Board tentatively decided to propose the following:
  • Users of the basic financial statements should be responsible for obtaining a reasonable understanding of governmental financial reporting, as described in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements.
  • The notes to financial statements should meet (or help meet) all of the objectives of financial reporting described in Concepts Statement No. 1, Objectives of Financial Reporting.
  • The project scope should focus on concepts related to the notes to basic financial statements by expanding or elaborating on the portion of Concepts Statement 3 that relates to the notes to financial statements.
  • The following topics should be considered in the scope of the project:
    • The purpose of note disclosures
    • The limitations of note disclosures
    • The characteristics of essentiality
    • The presentation and format of note disclosures, including the location of the information within the note disclosures section
    • The consideration of note disclosures individually and as a whole
    • The level of detail for note disclosures.
  • The development of concepts related to materiality should be excluded from the scope of the project.
  • The purpose of note disclosures is to provide information that explains, describes, or supplements the financial statements and is essential to users in making economic, social, and political decisions and assessing accountability. The types of information provided by notes include:
    • Descriptions of the accounting and finance-related policies underlying amounts recognized in financial statements
    • More detail about or explanations of amounts recognized in financial statements
    • Additional information about financial position or inflows and outflows of resources that does not meet the criteria for recognition
    • Other finance-related information associated with the accountability of the government.
  • Existing descriptions of types of information that should not be included in note disclosures, as stated in paragraph 37 of Concepts Statement 3, should be retained, including:
    • Subjective assessments of the effects of reported information on the reporting unit’s future financial position
    • Predictions about the effects of future events on future financial position.
  • The types of information that should not be included in note disclosures should clarify that expectations and assumptions about the future that are inputs to current measures in the financial statements or note disclosures should not be excluded from the note disclosures.
  • General information that is specific to the government and is easily obtainable from other sources should not be included as information that is inappropriate for note disclosures.
  • General or educational information that is not specific to the government should be included as information that is inappropriate for note disclosures.