In January 1996, FASB issued an exposure draft of a standard that would address

Question

In January 1996, FASB issued an exposure draft of a standard that would address both the computation of earnings per share and the disclosure of information about a firm's capital structure. However, the board divided these topics into two standards. Statement of Fianancial Accounting Standards N0. 128 was issued to address earings per share issue s and Statement of Financial Accounting Statndards No. 129 was issued to address information related to the capital structure of firms. Read statement of Financial Accounting Standards No. 129 and answer the question: Why did FASB decide to split the exposure draft into two final standards? Why did FASB make SFAS No. 129 applicable to nonpublic entities? Do you have any opinion about this statement? Feel free to express your own opinion.

Explanation / Answer

1. Dividing into 2 separate sections:

The SFAS No 128 , Earnings per share was issued to provide for the calculation, computation and presentation of the Earnings per share but the same is not applicable to non-public entities. However, Part II of the proposed Statement included disclosure requirements for information about capital structure and was applicable to all entities. Since in the same proposed statement there were 2 different disclosure requirements with applicability to different entities, board decided to issue Part II as a separate Statement (SFAS No. 129) because of its applicability to nonpublic entities.

2. When the board issued SFAS No. 129, it noticed that although some of the disclosures are not related to computation of earnings per share but they provide useful information to the users of financial statements and such disclosures were not applicable to non-puublic entities. Therefore, board decided to include non-public entities also in a separate statement for making them avaialble to the users. The Board believes that all of the required disclosures will be useful to users of financial statements of entities that have issued any type of security covered by this Statement, whether or not those securities are publicly held.

According to me Board has made very reliable decision in separating both the statements as two arenot the same and cannot be lonked to one another totally. By including non-public entities in the statement, board has ensured that even if a company is a private corporation, it is still accountable to the shareholders of the company and to the various users of the financial statements.

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