A drop in the number of disclosure notes chief financial officers must include in their financial statements is expected as the US Financial Accounting Standards Board (FASB) seeks input for its ongoing disclosure framework project.
The board released a 75-page consultation paper asking stakeholders how to improve the effectiveness of disclosures by making them more useful and less redundant. Comments are due by 16 November.
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David Larsen, a managing director at valuation specialist Duff & Phelps, said many private equity chief financial officers have questioned the relevance and sheer volume of information that must be contained in note disclosures. For instance, “having to disclose specific inputs used in the fair value estimates of portfolio companies could be an information overload for investors”.
Reducing the volume of notes is not the primary focus of the project, but “the board hopes that a sharper focus on important information will result in reduced volume in most cases”, the paper said.
Larsen said a more efficient framework for note disclosures would be a twofold victory for GPs: in reading underlying portfolio company financial statements and in the creation of the funds’ own statements.
FASB began work on its disclosures framework in 2009, having realised that financial reports became bloated with notes as a safeguard against regulatory scrutiny.
The discussion paper encompasses both public and private entities, but FASB said that the Private Company Council – created in May to identify and vote on differences in US GAAP for private companies – may have “some effect” on the consultation.
Stakeholders can submit their comments by email to director@fasb.org, with a subject line “File Reference No. 2012-220”.
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