Financial Reporting

FASB and the International Accounting Standards Board (IASB) published consultative documents that seek public comment on two of the eight phases of their joint project to develop an improved conceptual framework that provides a foundation for developing future accounting standards.

The first document is an exposure draft of the framework’s first two chapters. The draft proposes that financial reporting should provide financial information that is useful to present and potential equity investors, lenders and other creditors in making decisions in their capacity as capital providers. It presents an improved description of “faithful representation,” one of the qualitative characteristics that financial information should possess if it is to provide a useful basis for economic decisions. It seeks views on an improved objective of financial reporting, the qualitative characteristics of information provided by financial reporting, and constraints on the provision of that information.

The second document sets out the boards’ preliminary views on the reporting entity concept and related issues. Although the reporting entity concept determines some important aspects of financial reporting, the boards’ existing frameworks do not address it specifically. The boards’ preliminary views are:

A reporting entity is a circumscribed area of business activity of interest to present and potential equity investors, lenders and other capital providers.

Control is the basis for determining the composition of a group reporting entity.

Consolidated financial statements should be prepared from the perspective of the group reporting entity.

The documents are available at www.fasb.org and www.iasb.org . Comments on both documents are due Sept. 29.

FASB issued exposure drafts of two proposed Statements of Financial Accounting Standards, Disclosure of Certain Loss Contingencies—an amendment of FASB Statements No. 5 and 141(R) ; and Accounting for Hedging Activities—an amendment of FASB Statement No. 133.

The first statement would expand disclosures about certain loss contingencies in the scope of Statement no. 5, Accounting for Contingencies , or Statement no. 141(R), Business Combinations . Investors and other users of financial information have expressed concerns that current disclosures required in Statement no. 5 do not provide sufficient information in a timely manner to assist financial statement users in assessing the likelihood, timing and amount of future cash flows associated with loss contingencies. It would be effective for fiscal years ending after Dec. 15, 2008, and interim and annual periods in subsequent fiscal years. Comments on the draft, which is available at www.fasb.org/draft/ed_contingencies.pdf , are due by Aug. 8.

The amendment of FASB Statement no. 133 would require application for financial statements issued for fiscal years beginning after June 15, 2009, and interim periods within those fiscal years.

The statement is designed to simplify hedge accounting resulting in increased comparability of financial results for entities that apply hedge accounting. Specifically, the proposed statement would eliminate the multiple methods of hedge accounting currently being used for the same transaction. It also would require an entity to designate all risks as the hedged risk, with certain exceptions, in the hedged item or transaction, thus better reflecting the economics of such items a transactions in the financial statements.

The draft is available at www.fasb.org/draft/ed_hedging_amendment_st133.pdf . Comments are due Aug. 15.