The concept of materiality is quite a complex one. Defined as a “threshold above which missing or incorrect information in a financial statement is considered to have an impact on the decision making of users”, the concept is vulnerable to subjectivity and perception of each particular reader of the statement.

Last month, the Financial Accounting Standards Board (FASB) weighed in on the subject by issuing two exposure drafts as part of its disclosure framework project aimed at eliminating unnecessary disclosures. The drafts also address concerns raised by the U.S. Supreme Court on the ability of FASB to evaluate accounting standards within the legal concept of materiality.

The proposals address the use of materiality in two ways:

  • Helping organizations employ discretion when determining what disclosures in notes to financial statements should be considered “material”
  • Aiding FASB to better understand the reporting environment in which it sets financial accounting and reporting standards

The first exposure draft aimed to help clarify the concept of materiality requires amendments to FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting.

The second exposure draft, ASU, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, promotes appropriate discretion related to the materiality of disclosures for public and non-public entities, non-profits and employee benefit plans

Comments are welcomed on both exposure drafts by Dec. 8, 2015. To submit yours visit FASB’s website.

Stay tuned . . . Doeren Mayhew’s accounting advisors in Florida, Michigan, North Carolina and Texas will update you when final decisions have been made.