What is a Financial Reporting Exposure Draft (FRED)?
A Financial Reporting Exposure Draft (FRED) is a preliminary document published by accounting and financial regulatory bodies, such as the Financial Accounting Standards Board (FASB) or the International Accounting Standards Board (IASB). These drafts propose changes to current financial reporting standards, allowing stakeholders to review and comment before the final standards are issued. FREDs serve as an essential mechanism for ensuring transparency and inclusivity in the standard-setting process.
Key Functions:
- Consultation: Solicit feedback from stakeholders including accountants, auditors, financial analysts, and other interested parties.
- Assessment: Enable standard-setting bodies to assess the practical impact of proposed changes on financial reporting and disclosure.
- Transparency: Ensure the process of updating financial standards is transparent and broadly participatory.
Examples of Financial Reporting Exposure Drafts (FREDs):
- Revenue from Contracts with Customers: Proposed updates to the recognition of revenue, which received extensive feedback before finalization.
- Leases: Significant changes were proposed regarding how leases are reported on balance sheets, and an exposure draft helped gather crucial feedback.
Frequently Asked Questions (FAQs)
What is the purpose of an FRED?
The primary purpose of an FRED is to gather input and feedback from the public and stakeholders regarding proposed changes to financial reporting standards. This helps ensure that any revisions are practical, effective, and broadly accepted.
Who issues FREDs?
FREDs are issued by standard-setting bodies such as the Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB), and other national or regional accounting authorities.
How can stakeholders provide feedback on an FRED?
Stakeholders can provide feedback on an FRED through various channels, including public comment letters, participating in roundtable discussions, and submitting online feedback forms provided by the issuing standard-setting authority.
What happens after an FRED is issued?
After an FRED is issued, the standard-setting body collects and reviews the feedback received. Based on this feedback, the proposed standards may be revised, and then a final standard will be issued.
How long is the comment period for an FRED?
The comment period for an FRED typically ranges from 30 to 180 days, depending on the complexity and significance of the changes proposed.
Are FREDs mandatory documents?
No, FREDs are not mandatory documents; rather, they are proposals intended for consultation. However, the standards that result from the exposure drafts, once finalized, can become mandatory for compliance.
Can an FRED be rejected?
Yes, based on feedback received, an FRED can be significantly altered or even rejected if stakeholders identify major issues or impracticalities with the proposed changes.
Related Terms
Generally Accepted Accounting Principles (GAAP):
A framework of accounting standards, rules, and procedures defined by the professional accounting industry, used in the preparation of financial statements.
International Financial Reporting Standards (IFRS):
A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements.
Financial Accounting Standards Board (FASB):
An independent, private-sector, non-profit organization responsible for establishing accounting and financial reporting standards in the United States.
International Accounting Standards Board (IASB):
The global standard-setting body responsible for producing IFRS and fostering global accounting standards.
Exposure Draft (ED):
A proposed statement issued by a standard-setting body that provides the draft of a specific standard or amendment into the public domain for feedback.
Public Comment Period:
A designated period during which the public and stakeholders can review and provide feedback on FREDs and other regulatory proposals.
Online Resources
Suggested Books for Further Study
- “Financial Reporting and Analysis” by Charles H. Gibson: Provides an in-depth look at financial reporting principles and analysis of financial statements.
- “Accounting Standards: True or False?” by John Blake and Alison Derry: Explores the debates and intricacies of accounting standards, including exposure drafts.
- “Wiley IFRS 2022: Interpretation and Application of IFRS Standards” by PKF International Ltd: A comprehensive guide to understanding and applying IFRS standards.
Accounting Basics: “Financial Reporting Exposure Draft (FRED)” Fundamentals Quiz
Thank you for exploring the essentials of Financial Reporting Exposure Drafts with us and tackling our quiz questions. Continue to enhance your financial reporting acumen!
