Fasb Conceptual Framework

In: Business and Management

Submitted By rhomat27
Words 425
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According to the Financial Accounting Standards Board [FASB] (2010), materiality has to do with the relevance of information in financial reporting that can only be considered together with other factors. Materiality is specific to individual entities; the FASB cannot make a blanket determination of what might be considered material in any particular situation. Information could be considered material or immaterial based on the impact the information could have on investors’ or other decision makers’ decisions. The standard for materiality is generally considered the judgement of a reasonable person.
Quantitative Materiality According to the Financial Accounting Standards Board [FASB] (2008), there are several quantitative examples of materiality provided to firms. One such example, involves gross rental expenses under leases. The FASB (2008) says “disclose total rental expense, etc., if gross rents exceed 1% of consolidated revenue” (FASB, 2008, pg. CON2-36). Another example involves the dilution of earnings per share (EPS). The FASB (2008) says “reduction of EPS of less than 3% in the aggregate not material” (FASB, 2008, pg. CON2-36). While it’s difficult to quantify materiality in some cases, in others, such as the above examples, it can be. Materiality should be quantified when a standard applicable to all organizations can be determined. When materiality is quantified it provides better comparability in financial statements. Additionally, it helps to give stakeholders all the information they need to make better decisions.
According to the Financial Accounting Standards Board [FASB] (1980), there are two classes of elements in financial statements, levels of resources or claims to resources at the moment, and elements that describe the effects of transactions on an organization during a period. Assets, liabilities, and equity…...

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