IASB Discussion Paper on the Conceptual Framework

The International Accounting Standards Board (IASB) has published Discussion Paper DP/2013/1 A Review of the Conceptual Framework for Financial Reporting.  The Discussion Paper is the first step towards issuing a revised Conceptual Framework.

The Conceptual Framework for Financial Reporting (the ‘Conceptual Framework’) sets out the concepts that underlie the preparation and presentation of financial statements. The IASB’s preliminary view is that the primary purpose of the Conceptual Framework is to assist the IASB by identifying concepts that it will use consistently when developing and revising International Financial Reporting Standards (IFRSs).

Although the existing Conceptual Framework has helped the IASB when developing and revising IFRSs, the IASB has identified a number of problems with the existing Conceptual Framework:

  • some important areas are not covered. For example, the existing Conceptual Framework provides very little guidance on measurement, presentation, disclosure or how to identify a reporting entity.
  • the guidance in some areas is unclear. For example, the existing definitions of assets and liabilities could be improved.
  • some aspects are out of date and fail to reflect the current thinking of the IASB. For example, the existing Conceptual Framework states that an asset or a liability should be recognised only if it is probable that there will be a flow of economic resources. However, the IASB has concluded in some situations that recognising an asset or a liability would provide useful information even when a flow of economic resources is not probable.

The Discussion Paper is designed to obtain initial views and comments on important issues that the IASB will consider as it develops an Exposure Draft of a revised Conceptual Framework. The issues include:

  • definitions of assets and liabilities;
  • recognition and derecognition;
  • the distinction between equity and liabilities;
  • measurement;
  • presentation and disclosure; and
  • other comprehensive income (OCI).

The New Zealand Accounting Standards Board (NZASB) is particularly seeking constituents’ views on:

  • the proposal to re-measure certain equity claims at each reporting date to reflect transfers of wealth between classes of equity claims (see section 5, paragraphs 5.11 – 5.20);
  • the proposal to use a different measurement basis in the statement of comprehensive income from the measurement basis used in the statement of financial position for a particular item.  The IASB notes that measurement affects both the statement of financial position and the statement(s) of profit or loss and other comprehensive income and, therefore, the relevance of information provided by a particular measurement method may depend on how it affects the statement of comprehensive income and, if applicable, other components of the financial statements.  This mixed measurement approach results in mismatched measurements and meaningless balancing items (see section 6, paragraph 6.15, and section 8, paragraphs 8.55 – 8.61); and
  • the lack of a definition of “performance”, although the proposals for the presentation of performance and the identification of bridging items and mismatched measurements for inclusion in other comprehensive income depend on the meaning of “performance” (see section 8).

Read DP/2013/1 A Review of the Conceptual Framework for Financial Reporting

Read IASB Snapshot Review of the Conceptual Framework

How to Comment

Comments are due to the NZASB by 22 November 2013 and to the IASB by 14 January 2014.

Comments, both formal and informal, can be made to the NZASB addressed to the Chief Executive, External Reporting Board, PO Box 11250, Manners Street Central, Wellington 6142, or by email to submissions@xrb.govt.nz.

Respondents are also encouraged to send comments directly to the IASB, with a copy to the NZASB. Comments can also be made electronically via the IASB website (www.ifrs.org), using the ‘Comment on a proposal’ page located via the ‘Get Involved’ tab. The NZASB would appreciate copies of submissions made directly to the IASB.

It would be appreciated if respondents send their comments in electronic form (PDF and Microsoft Word formats) as it allows for efficient collation and analysis of comments. All comments will ultimately be posted on the XRB website unless respondents indicate that they wish their comments to remain confidential.

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