FASB Seeks Input on Proposed New Chapter of Its Conceptual Framework
The Financial Accounting Standards Board (FASB) recently issued a proposed new chapter of its Conceptual Framework related to the recognition and derecognition of an item in financial statements.
The Conceptual Framework is a body of interrelated objectives and fundamentals that provides the FASB with a useful tool as it sets standards. A Statement of Financial Accounting Concepts is nonauthoritative and does not establish or change generally accepted accounting principles. Stakeholders are encouraged to review and provide comment on the proposed chapter by Feb. 21, 2023.
The proposed chapter would become Chapter 5 of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting. The new chapter would be similar to the rest of the framework in that it establishes concepts that the Board would use in developing standards of financial accounting and reporting. It would provide the Board with a framework for developing standards that meet the objective of financial reporting and enhance the understandability of information for existing and potential investors, lenders, donors and other resource providers of a reporting entity.
The proposed chapter sets forth recognition and derecognition criteria and guidance on when an item should be incorporated into and removed from financial statements. Stakeholders are asked to provide input on three proposed recognition criteria an item should meet to be recognized in financial statements, subject to the pervasive cost constraint and materiality considerations. Those proposed criteria are:
a) Definitions—The item meets the definition of an element of financial statements.
b) Measurability—The item is measurable and has a relevant measurement attribute.
c) Faithful Representation—The item can be depicted and measured with faithful representation.
The Board also seeks stakeholder input on whether derecognition—the process of removing an item from financial statements of a reporting entity as an asset, liability or equity—should occur when an item no longer meets any one of the recognition criteria.
For information on how to submit comments, visit the FASB website.