Concepts Statement No. 7
Communication Methods in General Purpose External Financial Reports that Contain Basic Financial Statements: Notes to Financial Statements—an Amendment of GASB Concepts Statement No. 3
(Issued 06/22)

Summary

This Concepts Statement is one of a series of Concepts Statements that the GASB has issued or will issue. Concepts Statements are intended to provide a conceptual framework of interrelated objectives and fundamental principles that can be used as a basis for establishing consistent accounting and financial reporting standards.

Concepts Statements identify the objectives and fundamental principles that can be applied to address numerous accounting and financial reporting issues. They assist the GASB in considering the merits of alternative approaches and facilitate the development of well-reasoned accounting and financial reporting standards. Concepts Statements also assist preparers, auditors, users, and other stakeholders to better understand the fundamental concepts underlying accounting and financial reporting standards. Concepts Statements do not, however, prescribe the accounting and financial reporting standards that apply to a particular item or event.

This Concepts Statement supersedes paragraphs 35–39 of Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, which address the communication method of disclosure in notes to financial statements.

This Concepts Statement describes the purpose of notes to financial statements and the users of those notes. It also defines the following criteria for disclosing information items in notes to financial statements:

• The types of information disclosed in notes to financial statements
• The types of information that are not appropriate for notes to financial statements
• The degree of importance that information disclosed in notes to financial statements should possess.

Information that is essential, as that term is used in this Concepts Statement, describes the degree of importance that information included in the notes to financial statements should possess. The following are the characteristics of essential information:

• The information has or is expected to have a meaningful effect on users’ analyses for making decisions or assessing accountability.
• A breadth or depth of users utilize or are expected to utilize the information in their analyses for making decisions or assessing accountability.

The concepts included in this Concepts Statement establish that information disclosed in notes to financial statements should correspond to the reporting units presented in the financial statements.

How This Concepts StatementT Improves Financial Reporting

This Concepts Statement improves financial reporting by enhancing the framework through which the GASB maintains consistency in standards setting. These concepts will be used to establish and reexamine requirements for notes to financial statements, which are an integral component of basic financial statements. The concepts also may benefit preparers and auditors in certain circumstances when evaluating potential information (based on the hierarchy of generally accepted accounting principles) to be included in notes to financial statements for which there are no specific existing authoritative standards.

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Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 7 discusses the applicability of this Concepts Statement.