Note Disclosures

FASAB Contact: fasab@fasab.gov, 202-512-7350

Project Summary:

In June 2021, staff merged the note disclosures amendments to Statement of Federal Financial Accounting Concepts (SFFAC) 2, Entity and Display, paragraph 68, with the MD&A concepts amendments, to SFFAC 2, paragraph 69, into the concepts omnibus project.

 As a result, the note disclosures project has been closed and archived.

Project Objective:

This project is a segment of the Board’s reporting model initiative.

The Federal Accounting Standards Advisory Board (FASAB) is undertaking this project primarily because recent FASAB survey results, as well as other accounting standards boards’ activities, suggest that improvements in disclosures are necessary. Note disclosures are an integral part of financial statements. Users rely on them to understand the financial statements and reach conclusions about the operating performance and stewardship of government resources. However, the disclosure requirements have accumulated on a Statement-by-Statement basis over many years. An overall review would improve balance across the disclosures and enhance their understandability to readers.

The project will be conducted in the following two phases:

  • Phase I – Identify and develop a set of principles for disclosure to be used by the Board to reduce repetition and improve relevance and consistency in note disclosure.
  • Phase II – Use the principles to modify the existing note disclosure requirements for component reporting entities to improve the disclosures’ usefulness and effectiveness

HISTORY OF BOARD DELIBERATIONS

April 27-28, 2021

At the April 2021 Board meeting, the Board discussed proposed note disclosure amendments to Statement of Federal Financial Accounting Concepts (SFFAC) 2, Entity and Display.

The Board agreed to the following edits to the latest draft version of the exposure draft:

  • The Board agreed to maintain the term “recognize” in the bulleted list and in item A and not to change the term to “display.”
  • The Board agreed to add “but not limited to” to the second sentence of item A.
  • The Board agreed to revise the first sentence of item B: “Note disclosures may supplement financial statements to provide information regarding the entity’s nature mission, services programs, significant relationships with other entities, and any special restrictions or privileges that apply to the entity.”
  • The Board agreed to revise the language in item D. The title was revised to “Financial-related information to inform decision-making and demonstrate accountability.” The Board asked staff to revise the item D description to align with the updated title.

There were no objections to staff’s question to the Board asking if there was agreement to move forward on the draft exposure draft.

Briefing materials – TOPIC C

February 23, 2021

At the February 2021 Board meeting, the Board discussed proposed note disclosure amendments to Statement of Federal Financial Accounting Concepts (SFFAC) 2, Entity and Display.

The Board discussed the latest proposed edits since the December 2020 meeting:

  • The subject heading was changed from “Other Information” to “Note Disclosures” to distinguish it from Required Supplementary Information. Note disclosures are basic information along with the financial statements.
  • The opening sentence was updated to read, “Financial information is also conveyed with note disclosures, which are an integral part of the basic financial statements.”
  • A suggestion was made to add “financial” as a qualifier to “accountability,” but the Board agreed that accountability is broader than just financial accountability.
  • The Board considered whether to add the term “essential” to the proposed amendments.
  • A member noted the concept of risk is important and suggested the Board deliberate where it is most appropriately discussed in the amendments.
  • A member suggested adding language to address legislative purposes behind government activities. The Board agreed to add the following sentence to the amendments: “In addition, note disclosures may communicate information regarding the legislative purpose behind governmental activities and the related accounting impact.”
  • The Board agreed to revise section A. – D. to delete the specific references to users and instead refer to the use of the information.

There were no objections to staff’s recommendation to not add duplicate language on stewardship, accountability, cost-benefit, understandability, and materiality in the updated note disclosure amendments to SFFAC 2.

Briefing materials – TAB F

December 15-16, 2020

At the December meeting, the Board continued discussions on the following types of information that note disclosures may present:

  1. Relevant information for supplementing and further explaining financial statement line items
  2. Context or background information regarding the reporting entity and its activities
  3. Past events, current conditions, and circumstances not previously recognized but that may affect an entity’s financial position, financial condition, or budgetary resources
  4. Other information to demonstrate the reporting entity’s stewardship and accountability

The Board suggested edits to enhance the category descriptions and better distinguish category C from category D. Members also agreed to consider amending Statement of Federal Financial Accounting Concepts 2, Entity and Display, to include the discussions of the categories.

Briefing materials – TAB C

Oct 21-22, 2020

At the October meeting, the Board continued to discuss note disclosure concepts and the types of information note disclosures may present. The Board agreed to enhance the purpose of note disclosures as discussed in Statement of Federal Financial Accounting Concepts (SFFAC) 2, paragraph 68. However, the Board preferred to further develop note disclosures concepts before deciding whether to amend SFFAC 2 or develop a new concepts statement.

The Board also agreed that note disclosure concepts should include language describing that concepts discuss basic note disclosures. Reporting entities may present additional information in note disclosures to better explain, clarify, or present information in financial statements.

The Board agreed that note disclosures may include information that explains less common items, such as sustainability information and tax expenditures. However, note disclosures would not include information to educate users on accounting fundamentals.

In addition, the Board considered the following types of information that note disclosures may present:

  • Relevant information integral to understanding line items of accrual basis financial statements and projections
  • Context or background information regarding the reporting entity and its activities
  • Past events, current conditions, and circumstances not previously recognized but that may affect an entity’s operating performance and stewardship
  • Other information users may need to assess the government’s accountability

The Board considered whether the concepts should discuss the budgetary integrity objective as a separate category of note disclosures and agreed that the concepts could integrate budgetary integrity into one of the four existing categories.

For the December 2020 meeting, staff will incorporate the Board’s conclusions in a revised list of the types of information note disclosures may present; compare the revised list to a listing of existing note disclosure requirements; and begin preparing an outline of the note disclosure concepts.

Briefing materials – Tab F 

August 26-27, 2020

At the August meeting, staff proposed the following types of information that note disclosures may present:

  • Relevant information for supplementing and further explaining financial statement line items
  • Context or background information regarding the reporting entity and its activities
  • Past events, current conditions, and circumstances not previously recognized but that may affect an entity’s financial position, financial condition, or budgetary resources
  • Other information users may need to assess the government’s accountability

The Board generally agreed with the proposed types of information and suggested edits to enhance the category descriptions. In addition, members noted that the category descriptions should help distinguish note disclosures from required supplementary information.

Briefing materials – TAB G

June 24 – 25, 2020

At the June 2020 meeting, members agreed that the draft exposure draft should discuss additional topics before proceeding to a pre-ballot draft. The Board noted that the draft needs to 1) explain the relationship between note disclosures and financial statements, elements, line items, and MD&A and 2) discuss the rationale for the types of information note disclosures should provide. In addition, a couple of members requested that staff provide a mapping from the types of information listed in paragraph 6 of the draft ED to

  • the August 2019 working group presentation, Note Disclosure Proposed Decision Questions to be Considered in Establishing Disclosure Requirements, and
  • other standard-setters’ guidance, such as the Financial Accounting Standards Board and GASB’s February 11, 2020, exposure draft titled Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements an amendment of GASB Concepts Statement No. 3.

Briefing materials – TAB H

February 26-27, 2020

The Board plans to conduct the note disclosures project in two phases. The first phase will involve developing conceptual guidance and the second phase will involve using the conceptual guidance to reexamine existing note disclosure standards.

Issue Paper for February 26-27, 2020 – Tab D (PDF)

December 17-18, 2019

At the December 2019 meeting, the Board discussed the interrelationships between the reporting model, note disclosures, and MD&A projects. Please see the reporting model phase II section for a detailed discussion on the session.

Issue Paper for December 17-18, 2019 – Tab F (PDF)

October 23-24, 2019

At the October 2019 meeting, the Board reviewed the updated note disclosures principles outline. The Board discussed condensing the principles to a few core principles. The Board noted that the principles should not be tied to any one topic.

The Board noted that the reporting model should be considered when developing the principles, including the relationship between the financial statements and the note disclosures.

The Board agreed to continue reviewing the core principles. Staff will research and provide recommendations for the remaining core principles.

Issue Paper for October 23-24, 2019 – Tab F (PDF)

August 28-29, 2019

At the August 29 meeting, staff and representatives from the note disclosures working group presented draft research results regarding proposed decision questions that may be considered when establishing disclosure requirements. They discussed the following three areas for each topic: (1) proposed NODI questions for FASAB, (2) applicability to the federal environment, and (3) examples that may apply. The Board generally agreed with the proposed decision questions and the method to categorize the questions by topic. The following eleven decision question topics were discussed in detail during the meeting:

  • New or modified accounting pronouncements
  • Alternative GAAP
  • Line item considerations
  • Budgetary/proprietary impact considerations
  • Method of measurement
  • Uncertainties
  • Phenomenon
  • Binding arrangements/obligations
  • Changes to nonfinancial assets
  • Stewardship
  • Categorization

Staff and the working group will update the topics and proposed decision questions based on the feedback received during the meeting.

Issue Paper for August 28-29, 2019 – Tab F (PDF)

June 26-27, 2019

The Board discussed updates to the draft note disclosure principles, including the newly added section related to note content. Members suggested minor edits and suggestions on the draft. Staff and the working group continue their research on the proposed decision questions for the Board to consider in establishing disclosure requirements.

Issue Paper for June 26-27, 2019 – Tab J (PDF)

April 24-25, 2019

The working group, in conjunction with staff, continues its research on developing the note disclosure principles, specifically questions for the Board to consider with developing note disclosure requirements.

February 27, 2019

At the February Board meeting, the Board approved updated partial draft language for note disclosure principles. This updated version addressed the comments from the last Board meeting and added additional language to help the Board apply the principles. A few minor modifications will be made in this updated version based on the February Board meeting discussion. In addition, the note disclosure working group resumed its activity in February and will continue developing principles.

Issue Paper for February 27, 2019 – Tab B (PDF)

December 18-20, 2018

The Board approved a partial draft of the note disclosure (NODI) principles. The draft covered the disclosure purpose and most of the disclosure content sections from the NODI principles outline. Staff will refine the partial draft based on input from members. Staff will focus on the following areas:

  • Whether the notes can be used as a substitute for the proper recognition and/or measurement of an element in the financial statement
  • Relevance versus materiality
  • Usefulness and disclosure objectives

This partial draft will be discussed with the working group for feedback from preparers and auditors.

Issue Paper for December 19-20, 2018 – Tab B (PDF)

October 24-25, 2018

The Board approved the proposed outline for the note disclosure principles framework, which included four sections: disclosure purposes, disclosure content, what should not be disclosed, and disclosure style. The Board agreed that the user’s need for disclosures should be incorporated in the disclosure purpose. Members also believed a potential section title such as “list of items to consider in deciding on disclosure” could be used to replace the proposed section title “what should not be disclosed.”

The Board also considered topics related to note disclosure including future-oriented information, the role and content of note disclosure compared to management’s discussion and analysis (MD&A), and sensitive disclosures. The members made the following conclusions:

  • Future-oriented information can be categorized in two ways—future oriented information recognized in the statements and unknown future events.
  • What is required in the notes and MD&A should be driven by what users need. The basic financial statements and the notes should be a standalone portion of each report. The notes are an integral part of the financial statements.
  • Sensitive disclosures may be limited to national security, procurement, and litigation.

Issue Paper for October 24-25, 2018 – Tab B  (PDF)

August 29-30, 2018

The note disclosure (NODI) working group presented its initial research results to the Board through four different topics: NODI communication, NODI questions for the Board, pilot note summary of significant accounting policies (SOSAP), and the pilot note fund balance with Treasury (FBWT). After discussing the working group’s research, the presenters gave the following suggestions to the Board:

  • Seven principles of effective communication
  • Decision questions that the Board could use when evaluating potential disclosures in the federal environment
  • A need for developing guidance in the FASAB Handbook for SOSAP, including developing a principle framework for the SOSAP note and distinguishing SOSAP from content in management’s discussion and analysis (MD&A)
  • Potential changes on certain FBWT disclosure requirements

The Board agreed that the activities conducted by the working group are in line with the NODI project’s objectives. Members provided specific guidance on each topic to the working group. The working group will temporary stop research during the year-end busy season.

Issue Paper for August 29-30, 2018 – Tab B  (PDF)

June 27-28, 2018

The Board did not discuss the Note Disclosures project in June 2018.

April 25-26, 2018

During the October 2017 meeting, the Board approved the note disclosure (NODI) project’s two-phased project plan. Currently, the project is in the first phase. The NODI working group resumed its tasks after the year-end busy season in December 2017.

During the April 2018 meeting, the Board approved the NODI project’s approach, scope, and some potential principles. Members discussed the following:

  • Disclosure objectives for each Statement to help preparers stay focused and potentially use their judgment to remove unnecessary disclosure
  • A project approach with the traditional disclosure method and a focus on disclosure principles
  • A concentration of the project scope on the disclosure principles and some discussion of non-FASAB information
  • The Board did not favor the two-tiered approach suggested by other accounting standards board staff (required summary and potential additional information for each disclosure).

Issue Paper for April 25-26, 2018 – Tab B & C (PDF)

October 25-26, 2017

At the October 2017 meeting, the Board approved the note disclosure project plan. The primary objectives of this project are to improve the relevance, clarity, consistency, and comparability of note disclosures among the federal entities. It includes two phases:

  • Phase I consists of identifying and developing a set of principles for disclosure to be used by the Board and preparers to reduce repetition and improve relevance and consistency in note disclosure.
  • Phase II consists of using the principles to modify the existing note disclosure requirements for component reporting entities to improve the disclosures’ usefulness and effectiveness.

On August 31, 2017, FASAB initiated an online note disclosure survey. The survey results confirmed the need to improve disclosures and targeted areas for improvement. Most respondents agreed that providing principle guidance would give flexibility to the agency while adhering to the objectives and increasing consistency. The respondents stated that the causes of note disclosure issues vary. These could be due to compliance with Circular A-136, input from the Certificate of Excellence in Accountability Reporting reviewers, or the auditor’s requirements (which are more rigorous than those required by FASAB).

During the meeting, the Board reviewed the survey results and provided some suggestions on the following topics:

  • Audiences of the future note disclosure principles – While it is critical to identify the primary users of both the component reporting entities’ financial reports and the consolidated financial report of the U.S. Government, it might be more relevant to make the note disclosures appealing to different groups. As identified in SFFAC 1, Objectives of Federal Financial Reporting, both internal and external users will be considered in the project: citizens, Congress, federal executives, and federal program managers. Instead of defining the primary users, this project will utilize the objectives defined in SFFAC 1 as guidance to develop the note disclosure principles. SFFAC 1 summarizes the objectives as such:
    • The objectives are designed to guide the Board in developing accounting standards to enhance the financial information reported by the federal government to (1) demonstrate its accountability, (2) provide useful information, and (3) help internal users of financial information improve the government’s management.
  • Principle-based framework with a concentration on providing relevant information – If an entity engages in the type of activity required by a note, and amounts involved are material, then the entity should present the information in the note. Disclosure should not be optional.
  • Judgment – Materiality should be described in both qualitative and quantitative terms, and it should be evaluated at the component level.
  • Improve clarity, consistency, and comparability – Taking a two-tiered approach to setting standards would not be particular helpful. There are pros and cons for providing illustrations and/or a checklist. Principles addressing readability would help the clarity and increase consistency of the note disclosures.

This project will be challenging considering the broad scope, complexity, and uniqueness of the federal government. The working group will resume its research in November after agencies’ year-end work is complete.

Issue Papers for October 25-26, 2017 – Tabs H-1 and H-2 (PDF)

August 31, 2017 Board Meeting

On August 31, 2017, the Board initiated an online note disclosure survey. The objective of the note disclosure survey was to solicit ideas for improving note disclosures and identifying areas where FASAB’s guidance could aid in streamlining the reporting of note disclosures in financial reports.

February 22, 2017 Board Meeting

During its February 2017 meeting, the Board approved a project to review and streamline existing note disclosures. To streamline note disclosures, the Board intends to review the materiality guidance and identify and develop a set of principles for note disclosures.

Issue Paper for February 22, 2017 – Tab E (PDF)