In Finance, what is an Exposure Draft?

Mary McMahon
Mary McMahon

An exposure draft is a draft version of a public pronouncement which is released to the public for comment. After a commenting period has expired, the document is revised in accordance with the comments and then re-released as an official pronouncement. The term “exposure draft” is often used specifically in reference to such documents released by the Financial Accounting Standards Board (FASB) in the United States.

Man climbing a rope
Man climbing a rope

When an exposure draft is developed, the organization issuing it identifies an issue and works with its members to draft a coherent, clear, and effective statement on the matter. The statement includes a proposal for addressing the issue, a discussion of how the proposed action will be implemented, and when the proposal will become effective. In the example of the FASB, such documents are used to set new standards for accounting practices.

By releasing a draft version to the public first, organizations have an opportunity to hear from people who may have an opinion on the matter. They can also take advantage of input from different perspectives which may not have been considered in the original draft. Public comment can also provide a chance to identify weaknesses in the exposure draft which should be eliminated in the final version which is to be released to the public.

Public comment in response to exposure drafts is weighed and considered by the organization drafting the proposal, which develops new drafts and refines the language until it is deemed ready for finalization. The final statement is released after the comment period is closed, and becomes part of the official collection of pronouncements from the organization. When organizations do things like setting industry standards, members of the public tend to pay close attention to their exposure drafts because they can indicate responses to ongoing issues and provide information about the future direction on the industry.

The FASB is a seven member board of accounting professionals which sets standards for financial reporting and accounting practices. Its public pronouncements on issues related to accounting and the financial industry vary widely in scope and are designed to address an assortment of issues. When the FASB issues an exposure draft, it provides a number of options for people who wish to comment on the proposed text. Information about current exposure drafts can be found on the FASB website along with options for submitting comments to the organization, for members of the public interested in doing so.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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