FASB Proposes Concepts for Defining Elements in a Financial Statement
The Financial Accounting Standards Board (FASB) today issued for public comment a proposed new chapter of its Conceptual Framework that defines 10 elements of financial statements. Stakeholders are encouraged to review and comment on the proposal by Nov. 13, 2020.
“The proposed new chapter of the FASB’s Conceptual Framework will provide a useful reference in the Board’s future standard-setting process,” stated FASB Chair Richard R. Jones. “An updated Conceptual Framework can help us set standards that improve the understandability of information companies and organizations provide to existing and potential investors, lenders, donors, and other resource providers.”
The proposed chapter, Concepts Statement No. 8, Conceptual Framework for Financial Reporting—Chapter 4, Elements of Financial Statements, defines 10 elements of financial statements to be applied in developing standards for public and private companies and not-for-profit organizations. They are assets, liabilities, equity (net assets), revenues, expenses, gains, losses, investments by owners, distributions to owners, and comprehensive income.
The proposed new chapter would replace Concepts Statement No. 6, Elements of Financial Statements, clarifying and improving upon its elements. Specifically, the new chapter would:
- Clearly identify the right or obligation that gives rise to an asset or a liability
- Eliminate terminology that makes the definitions of assets and liabilities difficult to understand and apply
- Clarify the distinction between liabilities and equity and between revenues and gains and expenses and losses and
- Modify the distinctions in equity for not-for-profit entities.
The proposal is part of the FASB’s ongoing conceptual framework project, which also includes current projects that address measurement and disclosure concepts.