The American Institute of CPAs’ (AICPA) Financial Reporting Executive Committee (FinREC) has submitted comments on the Financial Accounting Standards Board’s (FASB) materiality proposals – 1) Conceptual Framework for Financial Reporting, Chapter 3 – Qualitative Characteristics of Useful Financial Information, and 2) Notes to Financial Statements – Assessing Whether Disclosures are Material.
In its February 8 letter, FinREC wrote, “FinREC supports the proposed definition of materiality. We believe that the FASB’s effort is akin to a technical correction of GAAP. The proposed definition is consistent with the definition used by various U.S. regulators and the Supreme Court, and it is consistent with how we understand much of practice currently considers materiality.”
FinREC, however, did not support FASB’s proposal to state that materiality is a legal concept. “Instead,” FinREC wrote, “we believe the FASB should define the term, and in the basis for conclusions describe its consistency with the Supreme Court and various U.S. regulators. We believe (consistent with the observations of many other commenters) that the current proposal introduces unnecessary concern and uncertainty on how a CPA or financial professional might be challenged to somehow represent a level of legal expertise that they don’t have. We also believe not only that it is appropriate, but within the FASB’s purview to define materiality for financial reporting purposes, which is an overarching concept for all standards issued by the FASB.”
In concluding observations, FinREC wrote that it understands the FASB plans to engage with constituents who do not support its proposals and applauds that outreach. FinREC stated that it stands behind the stated objectives – improve disclosure effectiveness and thus improve communication of material information in financial statements.