Esnai: Recently, FASB will put a new project aiming at a more orderly and refined financial information disclosure on the agenda, in order to response the requirements by the Financial Reporting Improvement Advisory Committee (CIFiR) of U.S. Securities and Exchange Commission (SEC), the Investor Technology Advisory Committee (ITAC) of Financial Accounting Standards Board (FASB) and other relevant agencies.

“Many insiders are concerned at the so-called ‘disclosure overload’. One key factor to maintain the investors’ confidence in the market is to provide a fully informed and highly transparent financial reporting for them. And clear and sound information disclosure is indispensable to check whether the factor has been met. However, improving the integration methods of the disclosure helps to reduce the complexity.” Robert Herz, President of FASB, said in an announcement.

In fact, FASB has run counter to the above words in some instances, such as requiring the companies to provide more financial disclosure information in the aspects of off-balance-sheet entities, fair value measurement, and etc. Moreover, the convergence of the principle-oriented International Financial Reporting Standards also requires the accountants to provide more disclosure information, in order to explain how they applied their professional judgments to decide which accounting method should be used.

Herz indicated that FASB will start this new project to establish a principle-oriented financial information disclosure framework, which enables the companies to communicate with the investors more effectively, and helps the companies to eliminate the repeated disclosure and other outdated GAAP disclosure rules.

According to Herz’s statement, the aim of this move is not to supplement the status quo. Instead, this project will focus on establishing a completely new framework to improve the disclosure requirements of GAAP. This framework will enable the companies to focus on preparing the annual report disclosure information with more clear structure and changing the information disclosure status quo which someone asserted to be a mere formality and dogmatic. At the same time, SEC has recently begun to require the largest public companies to file their financial reporting using eXtensible Business Reporting Language (XRBL), and the new framework will also facilitate the companies in electronically tagging the relevant information in XBRL format.

The issues clarified in the project include financial information disclosure framework:

1.         Whether it can be applied to all enterprises, or the non-listed companies and non-profit enterprises are excluded.

2.         Whether it can be applied to the interim and annual reports at the same time.

3.         Whether it only focuses on the high-level accounting principles; and

4.         Whether it only focuses on the notes of the financial reports, or will expand its focus on better integration of the information provided by the financial reports, MD&A and other contents in the external reporting of the public companies.

FASB hopes to deliberate the project in the beginning of this third quarter, and release an initial comments draft in the first half of next year.