FASB met on November 15, 2023 to redeliberate its 2021 proposal updating interim financial reporting disclosures. The project was initiated to incorporate into GAAP a new disclosure principle that would be based on language that was removed in 2018 from SEC Regulation S-X. The narrowly scoped amendments were not intended to significantly change current practice. The original proposal also clarified when complete or condensed financial statements are appropriate for non-SEC registrants that prepare GAAP-compliant interim financial statements. The amendments would group all interim reporting requirements under Topic 270, Interim Reporting,1 and clean up duplicative disclosure requirements to make it easier for preparers to navigate the guidance.
Comment letter feedback indicated that the initial list of interim disclosures was incomplete. In May 2022, FASB directed the staff to thoroughly review all existing disclosure guidance to identify which disclosures are required for interim reporting. Some existing guidance is quite clear, such as “each period presented,” but other terminology is not as direct, such as “in the period in which an event occurs.” Staff then went back to source literature and FASB memos to determine the previous board’s intended disclosure objectives.
FASB agreed to include the following types of disclosures in a revised list of required interim disclosures:
- Disclosures specifically referenced in ASC 270 or explicitly required for interim periods in other Topics
- Disclosures supported by FASB documentation, such as ASC 270 general references, source literature, and internal documentation
Several international accounting firms have disclosure checklists that include interim reporting requirements, but FASB rejected these sources for consideration in this project.
Given the extensive nature of the revisions, FASB is planning to issue an updated proposal in the first half of 2024.
In 2018, the SEC removed language from Regulation S-X, Rule 10-01, Interim Financial Statements. FASB ratified amendments to create a new principle that would be applicable to all entities that provide GAAP-compliant interim financial statements and notes. The principle will require disclosure at interim periods when a significant event or transaction has occurred since the prior year-end that has a material effect on an entity. The resulting disclosures may be transaction or event specific.
GAAP-Compliant Presentation & Disclosure
The reissued proposal will carry forward the clarification that the following three forms of interim financial statements and notes are GAAP compliant:
- Financial statements prepared with the same level of detail as the previous annual statements subject to all GAAP presentation and disclosure requirements
- Financial statements prepared with the same level of detail as the previous annual statements subject to all GAAP presentation requirements and limited notes subject to the disclosure requirements in ASC 270
- Condensed financial statements and limited notes subject to the following disclosure requirements:
- Interim balance sheets shall include captions from an entity’s previous annual balance sheet. Where a balance sheet caption is less than 10% of total assets and the amount in the caption has not increased or decreased by more than 25% since the end of the preceding fiscal year, the caption may be combined with other captions.
- Interim statements of comprehensive income shall include captions from an entity’s previous annual statement of comprehensive income. When any statement of comprehensive income (or statement of net income if comprehensive income is presented in two separate but consecutive financial statements) caption is less than 15% of average net income for the most recent three fiscal years and the amount in the caption has not increased or decreased by more than 20% as compared with the corresponding interim period of the preceding fiscal year, the caption may be combined with others. In calculating average net income, loss years should be excluded. If losses were incurred in each of the most recent three years, the average loss should be used for this test. De minimis amounts do not need to be shown separately.
- The statement of cash flows may be abbreviated starting with a single figure of net cash flows from operating activities and showing cash changes from investing and financing activities individually only when they exceed 10% of the average of net cash flows from operating activities for the most recent three years. De minimis amounts do not need to be shown separately.
Effective Date & Transition
After reviewing feedback, FASB will determine effective dates. Any changes would be applied on a prospective basis.
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- 1Currently, some interim disclosure requirements are included in Accounting Standards Codification (ASC) 470, Debt; ASC 505, Equity; ASC 808, Collaborative Arrangements; and ASC 860, Transfers and Servicing.