Notes To Financial Statements: Re: Proposed Statement of Financial Accounting Concepts On (File Reference No. 2014-200)

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July 14, 2014

Mr. Russ Golden


Chairman
Financial Accounting Standards Board
301 Merritt 7
P.O. Box 5116
Norwalk, CT 06856

Re: Proposed Statement of Financial Accounting Concepts on Chapter 8:
Notes to Financial Statements (File Reference No. 2014-200)

Dear Chairman Golden:

The U.S. Chamber of Commerce (the Chamber) is the worlds largest
federation of businesses and associations, representing the interests of more than
three million U.S. businesses and professional organizations of every size and in every
economic sector. These members are both users and preparers of financial
information. The Chamber created the Center for Capital Markets Competitiveness
(CCMC) to promote a modern and effective regulatory structure for capital markets
to fully function in a 21
st
century economy. To achieve these goals, the CCMC has
supported the development of robust financial reporting systems and encouraged
efforts to improve standards and reduce complexity.
The CCMC appreciates the opportunity to comment on the Financial
Accounting Standards Board (FASB) Exposure Draft on the Conceptual Framework
for Financial ReportingChapter 8: Notes to Financial Statements (the Proposal), which
amends an earlier version of the proposal published in July, 2012 (July 2012
Proposal). The CCMC commented on the July 2012 Proposal
1
and appreciates that
a number of our concerns have been addressed. Indeed, we believe that the Proposal

1
See November 19, 2012 CCMC letter to FASB on the Disclosure Framework (File Reference 2012-220).
Mr. Russ Golden
July 14, 2014
Page 2


is an important project to improve disclosure effectiveness to promote efficient
capital markets and protect investors in a 21
st
century economy.
However, a number of concerns remain and the Proposal itself raises some
new issues as well. The CCMC believes that the Proposal may lead to duplicative
disclosures that conflict with existing legal requirements, may force businesses to
disclose information unrelated to financial reporting and not material to investors and
the proposal seeks to use cost-benefit analysis in a manner to justify disclosure of
non-financial information that may not be material or necessary to reflect economic
activity. Additionally, the Proposal in its current form may undermine the ability of
businesses to avail themselves of acceptable forms of accounting such as last-in-first-
out (LIFO) accounting. This could cause economic harm to a company and its
investors.
Overall, the CCMC is concerned about the boundary for determining
information to be disclosed in notes to the financial statements as reflected in the
Proposal. It appears that the explanation of concepts in the Proposal would not
always appropriately confine note disclosures to information with a direct nexus to
the financial statements. If the note disclosures no longer have a direct nexus to the
financial statements, there is a risk that the disclosures will be used to advance
political and social goals that are not a proper subject of financial reporting.
These concerns are discussed in more detail below.
Background
The Proposal is part of FASBs initiative to improve the effectiveness of
disclosures. Others, including the Securities and Exchange Commission (SEC),
have undertaken similar efforts to modernize disclosures in order to facilitate the
dissemination of decision useful information for investors and promote capital
formation in a 21
st
century global economy. The CCMC applauds these efforts and
believes that they are necessary for the SEC and FASB to achieve their missions.
2


2
For example, the U.S. Chamber of Commerce is holding an event on July 29, 2014 on Corporate Disclosure Reform:
Ensuring a Balanced System that Informs and Protects Investors and Capital Formation to discuss the state of
corporate disclosure and hear from stakeholders and experts on how the business community can be part of the solution
to improve the structure of disclosure requirements.
Mr. Russ Golden
July 14, 2014
Page 3


Corporate disclosures, both financial and non-financial, are the primary means
for companies to communicate material information to investors to allow them to
make informed decisions on how and where to deploy capital. While information
delivery and markets have evolved dramatically, the basic disclosure framework has
not kept pace. Therefore, the Proposal in conjunction with other disclosure
effectiveness initiatives are critical to modernize information for investor decision-
making, boost confidence, and help facilitate the economic activity that allows our
capital markets to thrive.
The Proposal is one component of FASBs broad disclosure framework project
and encompasses conceptual matters related to the notes to financial statements.
FASB intends to use the concepts developed as a basis for establishing disclosure
requirements in the future as well as evaluating existing disclosure requirements.
3

Additionally, FASBs disclosure initiative includes a separate component related to
decisions that reporting entities make when evaluating disclosure requirements.
However, the Proposal states that the entitys decision process for complying with
disclosure requirements is not part of the conceptual framework and will be exposed
separately in a proposed Accounting Standards Update (Update).
4
We hope that
this Update will be released soon so stakeholders can evaluate it in conjunction with
the Proposal.
Furthermore, it is our understanding that FASB is also working on a
simplification initiative to reduce narrow sources of unnecessary complexity in current
standards, including disclosures in the notes to financial statements.
I. Holistic and Integrated Approach
The CCMC comment letter for the July 2012 Proposal (CCMC 2012
Comment Letter) strongly recommended that the FASB take a holistic and
integrated approach to disclosure and, therefore, work with the SEC and other
regulators. The Proposal states that FASB is working in a coordinated manner with
the SEC staff, and expects to continue to do so, to identify ways to improve the
efficiency and effectiveness of disclosures, including ways to reduce overlapping

3
See paragraph 6 of the Proposal
4
See paragraph 7 of the Proposal.
Mr. Russ Golden
July 14, 2014
Page 4


disclosures.
5
The CCMC is encouraged that the FASB recognizes the importance of
taking a holistic and integrated approach to disclosure.
However, the CCMC remains concerned that certain language in the Proposal
would open the door for the FASB to promulgate duplicative disclosure
requirements that would exacerbate rather than reduce financial reporting complexity
and disclosure overload. For example, the Proposal states:
The Board attempts to avoid requiring information in notes that entities are otherwise
required to provide, for example, in SEC filings or other regulatory reports. However, there
are valid reasons why the Board at times considers requiring disclosure of information in notes
when the entity provides similar or identical information in other forms of communication.
6

The Proposal goes on to explain that valid reasons include that some entities
may not be subject to the disclosure requirement, the information may not be
required every period or be as timely as the financial statements and notes, or the
required information may not be as complete or subject to the same degree of
scrutiny and verification.
7

Thus, it appears that the Proposal would allow FASB to determine that certain
SEC disclosures, for example, in Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A), should be subject to audit
contravening an SEC decision. As a result, the FASB could require public companies
to make duplicative disclosures in the notes to financial statements of information
already required by the SEC to be disclosed in MD&A.
This is a classic example of overload that runs counter to the concept of
disclosure effectiveness. Should this come to pass it will create burdens for
businesses, harm investors, and expand liability risk. This is an example of why cost-
benefit analysis should be used in determining the appropriateness of proposals. It is
also unclear what investor interest FASB is trying to address with duplicative
disclosures that can cause economic harm and disadvantage investors.

5
See paragraph 8 of the Proposal.
6
See paragraph D21 of the Proposal.
7
Ibid.
Mr. Russ Golden
July 14, 2014
Page 5


In addition, it appears that the Proposal would allow FASB to extend to private
companies various SEC disclosure requirements such as those in MD&A. For
example, the Proposal provides that if financial statement amounts changed from
previous reporting periods or dates, and that information is not otherwise available or
apparent, it would be appropriate for FASB to require companies to provide that
information in the notes.
8
Public companies already provide a good deal of this type
of information in MD&A, including a three year comparison of results of operations
with explanations for changes in these results by income statement line-item. It is
unclear how such a notes disclosure would provide investors in public companies
with more relevant information than they already have.
Therefore, while existing MD&A disclosures may preclude public companies
from having to provide such notes disclosures, the Proposal would open the door to
FASB requiring private companies that use Generally Accepted Accounting Principles
in the U.S. (U.S. GAAP) to provide such information in the notes.
An extension of MD&A notes disclosures to private companies creates its own
sets of problems. For example, any such extension fails to take into consideration
that the needs of financial statement users of private companies is radically different
than public company financial statement users. These differences in user needs, in
our view, preclude any need for such disclosures for private companies that use U.S.
GAAP. It should also be noted that public policy entities with jurisdiction over
private companies have not mandated such disclosures for private companies and
Congress has explicitly narrowed the scope of disclosures for Emerging Growth
Companies through the Jumpstart our Business Startups Act (JOBS Act).
Accordingly, the CCMC believes that such an expansion of disclosure to
private companies is not appropriate.
Further, the Proposal appears to allow FASB to formulate its own, unique
MD&A-type disclosures in the notes to financial statements for all types of entities,
including public companies. For example, in the name of providing additional
information about financial statement line-items, the Proposal suggests that the notes
could include:

8
See paragraph D37.
Mr. Russ Golden
July 14, 2014
Page 6


Potential effects of changes in general legal and economic conditions, accounting methods,
market forces, and factors specific to the entity or sector such as social perceptions or initiatives,
imminent obsolescence, supply chain concerns, new regulations, availability of trained workers,
management turnover, or environmental hazards
9
[emphasis added].
The CCMC appreciates that the Proposal attempts to articulate reasonable
objectives for the notes and high level information on the boundaries for the notes.
10

This is consistent with the recommendation of the CCMC 2012 Comment Letter that
the framework needs a practical and workable set of core principles for disclosures.
However, various statements in the Proposal, including those that articulate
exceptions to items that generally should not be required by FASB in the notes, makes
for a disclosure boundary with a very slippery slope. Also, if the exceptions create
ambiguity as to what must be disclosed, issuers may end up disclosing more than is
required to reduce the risk of liability. This could lead to the disclosure of immaterial
information that worsens the problem of disclosure overload.
Instead, the CCMC recommends that the Proposal emphasize the core concept
that note disclosures need to have a direct nexus with the financial statements. In
addition, under a holistic and integrated approach, the CCMC also recommends that
FASB not lose sight of the fact that the articulation of concepts in Chapter 8 needs to
ensure that the concepts will withstand the test of time in avoiding duplicative
disclosures and disclosure overload.
II. Cost-Benefit Considerations
The CCMC 2012 Comment Letter emphasized the importance of including
cost-benefit considerations in a disclosure framework. The CCMC and others believe
that the use of cost-benefit analysis is necessary for effective standard setting and
providing a better means of understanding the consequences of standards as they are
developed and in the immediate post-implementation phase.
11
Thus, the CCMC is

9
See item (d) in paragraph D38. For additional examples that raise a similar concern, see paragraphs D52(c) and various
items in D57 of the Proposal.
10
Paragraphs S2-S4 of the Proposal provide a general description of the purposes of the notes and the boundaries of
disclosures. Paragraph S5 describes information that generally should not be required by the Board in the notes.
11
As noted in CCMCs letter of November 19, 2012, the use of cost-benefit analysis has been expanded by Congress to
the Public Company Accounting Oversight Board (PCAOB) in the development of audit standards and emerging
growth companies through the JOBS Act, as well as through SEC-Self Regulatory Organization (SRO) rulemakings,
Mr. Russ Golden
July 14, 2014
Page 7


pleased to see that the Proposal recognizes the importance of cost-benefit
considerations and the need to avoid negative consequences in promulgating
disclosure standards for notes to financial statements.
12
However, the CCMC has
several concerns regarding the discussion of these matters in the Proposal.
The CCMC is concerned with the manner in which FASB seeks to use Cost-
Benefit Analysis. The Proposal allows for FASB to promulgate disclosure
requirements about general economic, political, and social conditions, events, and
circumstances that are common knowledge if the FASB determines that such
information is not generally available or because the entity is in a better position to
evaluate the effects of significant economic, social, or political change.
13

The CCMC believes that this goes far afield of providing financial disclosures
to reflect economic activity. Attached with this letter is a June 26, 2014 comment
letter (WFE Letter), which we request be considered in the record in conjunction
with this comment letter, from the Chamber to the World Federation of Exchanges
and the Investor Initiative for Sustainable Exchanges on a proposal for
Environmental, Social and Governance (ESG) disclosures. We believe that such
determinations must be made by appropriate legal authorities, which in this case
would be the SEC and not FASB, and that such disclosures must meet materiality
standards as required under law.
Consistent with CCMCs overarching concern, the Proposal appears to leave
the door open for FASB to promulgate requirements for disclosure of information in
the notes even though such information is not entity-specific and does not have a
direct connection to the financial statements. Since any such required information
would also be subject to an audit, we also wish to reinforce the concern expressed in
our 2012 Comment Letter about the need to recognize and address issues related to
the auditability of note disclosures.
Cost-benefit analysis is a tool that can and should be used for factual empirical
based standard setting. We hope that FASB will commit itself to that goal.

such as announcements by the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities
Rulemaking Board (MSRB) that they would incorporate cost-benefit analysis into their rulemaking process. The
PCAOB has recently issued guidance on its use of cost benefit analysis in standard setting.
12
See, for example, paragraphs D17, D19, and D23 of the Proposal.
13
See footnote 7 in the Proposal.
Mr. Russ Golden
July 14, 2014
Page 8


Requiring that note disclosures have a direct nexus to the financial statements
helps to ensure the integrity of financial reporting, which would be compromised if
note disclosures ended up being used to advance political and social policy goals.
III. Future-Oriented Information
The CCMC appreciates that the discussion in the Proposal now recognizes that
the SEC requires disclosure of future-oriented (i.e., forward-looking) information in
MD&A and accordingly is subject to a safe harbor against litigation. The CCMC also
appreciates that the Proposal attempts to articulate some concepts for the types of
future-oriented information that might be usefully disclosed in the notes subject to
cost constraints and the avoidance of significant negative consequences to companies
and their investors and creditors. However, even though the specific examples
provided to illustrate the concepts may not seem unreasonable on their face, the
CCMC is again concerned that the Proposal would open the door for FASB
promulgating disclosures of forward-looking information that do not have a direct
nexus to the financial statements, would put management in the shoes of users in
analyzing their financial statements, and would raise problems with respect to
auditability.
This could create information clutter degrading the decision making capability
of investors and increasing liability risk.
IV. Materiality
The Proposal states:
The Boards judgments about whether to establish disclosure requirements necessarily are
based on broad general considerations of relevance rather than on materiality, which is entity
specific. Therefore, materiality decisions must be made by each individual entity, and the
Board should establish requirements that are not so prescriptive that they preclude reporting
entities from making materiality judgments.
14

In addition to our earlier comments and the WFE letter discussion on
materiality, we would like to reiterate a point in the CCMC 2012 letter that the
definition of materiality in the FASB Statements of Financial Accounting Concepts

14
See paragraph D18 of the Proposal.
Mr. Russ Golden
July 14, 2014
Page 9


(Concepts Statements) differs from that based on court decisions interpreting the
federal securities laws and contained in the auditing standards of the Public Company
Accounting Oversight Board (PCAOB).
15
For example, PCAOB Auditing Standard
No. 11 states:
In interpreting the federal securities laws, the Supreme Court of the United Stated has held
that a fact is material if there is a substantial likelihood that the fact would have been
viewed by the reasonable investor as having significantly altered the total mix of information
made available. As the Supreme Court has noted, determinations of materiality require
delicate assessments of the inferences a reasonable shareholder would draw from a given set
of facts and the significance of those inferences to him.
While we recognize that Concepts Statements are not authoritative under the
FASB Codification, this inconsistency in definitions creates confusion and could
increase litigation risks for companies and auditors alike. The CCMC is encouraged
that recently FASB reached the tentative decision to amend Topic 270, Interim
Reporting, to reflect that disclosures about matters required to be set forth in annual
financial statements should be provided on an updated basis in the interim report if
there is a substantial likelihood that the updated information would be viewed by a reasonable
investor as significantly altering the total mix of information available to the investor (emphasis
added).
16

We also would refer FASB to the WFE letter attached and the extensive
discussion of materiality and its legal significance.
As a result, the CCMC recommends that the FASB use the definition of
materiality in the Concepts Statements which is consistent with securities laws, court
decisions, and PCAOB auditing standards.
17
Otherwise, the disclosure framework
envision by the FASB does not appear to be a workable one for reporting entities to
apply.


15
By way of reference, Statement of Financial Accounting Concepts No. 8 defines materiality as follows: Information is
material if omitting it or misstating it could influence decisions that users make on the basis of the financial information
of a specific reporting entity (paragraph QC11, Chapter 3).
16
See Tentative Board Decisions (as of May 30, 2014) under Disclosure Framework Entitys Decision Process on the
FASB website.
17
We appreciate that this could also involve the FASB working with the IASB to maintain converged definitions.
Mr. Russ Golden
July 14, 2014
Page 10


V. Appendix A
Appendix A of the Proposal contains a series of questions about the nature of
items being considered that, if answered positively, indicate FASB should consider
requiring disclosure when setting new accounting standards or updating existing
standards. We recognize that the questions in Appendix A would be considered
subject to the concepts discussed in the Proposal, including the one on costs.
However, as a threshold matter, the CCMC is concerned the Appendix consists of
nearly 20 questions, most all of which have multiple sub-parts, that FASB would
routinely ask in crafting disclosure requirements on each and every standard-setting
initiative. There is no prioritization or hierarchy to the questions and we believe this
approach is not commonly deployed in the standard setting process used by FASB.
This irregularity will in our view harm the ability of FASB to meet its goal to enhance
disclosure effectiveness.
The CCMC recommends that any such Appendix should likewise include
questions for FASB to consider on eliminating disclosures that are obsolete,
unnecessary or redundant when setting or updating accounting standards. The
CCMC notes that questions of this nature would be consistent with the expressed
intent, as previously discussed, to use the concepts developed as a basis for evaluating
existing disclosure requirements, not just establishing new disclosure requirements in
the future.
The CCMC is also concerned that some questions in Appendix A have wide
ranging consequences that should be subjected to more rigorous debate, analysis and
scrutiny. For example, Question L15 asks if there is an alternative measure or way of
applying a measurement that clearly would be useful in assessing prospects for cash
flows. If so, FASB could require information to be disclosed to identify the
alternative and indicate the magnitude of the difference between the reported and
alternative measurement.
18
Routinely imposing a requirement for disclosing the latter
would be burdensome. One means of mitigating this concern, though it does not
eliminate it, is to state that the term clearly would be useful would mean in all cases
clearly would be useful on a cost-benefit basis.

18
See page 34 of the Proposal.
Mr. Russ Golden
July 14, 2014
Page 11


Additionally, in Question L15 discussed above, the LIFO (as opposed to
FIFO) method of inventory costing is used as an example. LIFO is also used in
Question L10 of Appendix A as an example of an accounting method where the
results produced are counter to what a reader might otherwise expect.
19
These
examples make LIFO appear to be an outlier accounting choice and could
mistakenly be interpreted as suggesting that the FASB is distancing itself from LIFO
accounting. This fails to recognize that LIFO is an appropriate choice under the
Internal Revenue code and U.S. GAAP. Accordingly, a large number of companies
use LIFO accounting, and a switch from this method of accounting could cost
businesses over $150 billion dollars, a cost that will ultimately fall onto investors.
Again, such a change in financial reporting will drive economic activity harmful to
investors.
It would be inappropriate to undermine the use of LIFO accounting via a
Statement of Financial Accounting Concepts.
VI. Other Matters
The Proposal states:
In preparing responses to this Exposure Draft, respondents should consider the differences in
status of the FASB Concepts Statements and the Accounting Standards Codification, as well
as the possibility that FASB Concepts Statements could be elevated to authoritative status in
the future.
20

Formulating responses to the Proposal based on the possibility that FASB
Concepts Statements could be elevated to authoritative status in the future is a
daunting assignment.
21
The Concepts Statements are currently intended to be used by
FASB in developing accounting standards and are crafted based on this intent. It is
not at all clear if or how the Concepts Statements generally or the Proposal
specifically could be practically or workably applied by preparers (and auditors).
Asking them to do so would raise a number of issues, not the least of which relate to

19
See page 32 of the Proposal.
20
See paragraph P11 of the Proposal.
21
We also note that it appears inconsistent with the statement in the Proposal, as previously discussed, that the entitys
decision process for complying with disclosure requirements is not part of the conceptual framework and will be
exposed separately in a proposed Accounting Standards Update (paragraph P7).
Mr. Russ Golden
July 14, 2014
Page 12


the litigious nature of the U.S. legal system. If the FASB is seriously considering this
move, we respectively suggest that it should be separately discussed and subject to its
own due process.
22

Conclusion

The CCMC appreciates the opportunity to comment on the Proposal. While
the CCMC believes that the Proposal is an improvement over the 2012 Proposal, we
still have significant concerns, some of which are new. In its current form, the
Proposal may inhibit disclosure effectiveness by contributing to financial statement
complexity.

The CCMC stands ready to assist in the effort to develop a framework for
effective disclosures, including in the notes to financial statements, which convey
relevant information for market participants and mitigate disclosure overload and
financial reporting complexity.

Sincerely,


Tom Quaadman

22
Relatedly, Question 10 for Respondents asks: If no disclosure guidance for a transaction, event, or line item is
specified in U.S. GAAP, how will an entity consider the nonauthoritative guidance in this chapter? (See page 7 of the
Proposal.) As a threshold matter, the Proposal does not lend itself to application by preparers (or auditors) under
circumstances where US-GAAP does not contain any disclosure requirements. The CCMC recommends that the FASB
acknowledge that such conceptual guidance is intended to be used solely by the Board in promulgating standards for
disclosures in notes to financial statements.

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