Nonprofit & Government Times Q1 2020

Footnote Disclosure Overload JOHN D’AMICO, CPA PARTNER, PROFESSIONAL STANDARDS GROUP

T he terms “footnote disclosure years by various constituent groups to describe their concerns about the complexity of Financial Accounting Standards Board (FASB) accounting rules and the resulting profusion of footnote disclosures. By definition, financial statements are backward looking. The statement of financial position (balance sheet) shows you the values as of a certain point in time, known as the organization’s year end, whereas the statement of activities (income statement) and cash flows shows how the organization performed over a period of time, typically a year. Footnote disclosures describe how the numbers in the state- ment of financial position, statement of activities and cash flow statements were determined and provide a sense of where the organization is going. Financial statements are required to provide full disclosure, including future contingencies and commitments. The overload” and “standards overload” have been used off and on for over 20

footnotes complete the organization’s obligation to disclose this information.

Over the years, the FASB has had several projects to “streamline disclosures” and a “Disclosure Framework” project to improve the effectiveness of disclosures in notes to financial statements by clearly communicating the most important information to users of each entity’s financial statements. Although reducing the volume of notes to financial statements was not the primary focus, the FASB hopes that a sharper focus on important information will result in reduced volume in most cases. However, it seems that these projects have been somewhat forgotten for nonprofits. The extensive footnote disclosures have in many ways been a detriment to the main reason why there are footnote disclosures in the first place: to inform the stakeholders of relevant information about the organization. As a result, most stakeholders do not fully read the notes because of their length. Important information can easily be buried, and more footnotes have resulted in additional costs to prepare the annual financial statements both internally and externally.

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