The Conceptual Framework for Financial Reporting is the IASB’s foundation for developing accounting standards. As such, the Board’s commitment to revise it could have major consequences for IFRS in the future.
The project is no small task, and stakeholder expectations are high. If the core underlying principles are robust, then they should lead to a set of internally consistent accounting standards that reduce complexity, improve comparability and lead to a faster, less controversial standard-setting process.
“The IASB is making progress, but there is still a lot to be done if it is to achieve the desired outcome.”
The proposals cover all aspects of the revised framework, including topics that had been deemed ‘closed’ – e.g. prudence and stewardship.
In particular, the following proposals are likely to result in changes, and therefore challenges. Look out for our forthcoming articles on these areas.
|New ‘bundles of rights’ approach to assets||How would a physical object be ‘sliced and diced’ from an accounting perspective – e.g. could one aircraft be recorded on two balance sheets, and to what extent could it be split into different rights?|
|New control-based approach to derecognition||Would the pure control model – rather than a risk-and-reward model – work, considering previous experience with the standards for revenue and financial instruments?|
|New ‘practical ability’ approach for recognising liabilities||How would a company determine which future actions/costs it has no ‘practical ability’ to avoid?|
|Limited guidance on the dividing line between profit and loss and other comprehensive income||
Would this guidance help to codify the current approach, or provide a fresh approach to resolve the long-standing issue of performance reporting?
Some areas of controversy in financial reporting – e.g. the distinction between liabilities and equity – have been removed from the project’s scope, and are being dealt with in separate projects.
Stakeholders expect the Conceptual Framework project to resolve a number of long-standing issues. It’s therefore vital for all stakeholders to assess whether their aspirations would be met by the proposals.
Comments are due to the IASB by 26 October 2015. Don’t miss this opportunity to join the debate and make your views heard.
Stakeholders expect the Conceptual Framework project to resolve a number of long-standing issues. Read our comment letter to understand KPMG’s view of the proposals.’
Look out for our forthcoming articles on the challenges identified above, as well as our comment letter on the 2013 consultation.and
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