• Discussed with SAC: July 2001: Elements definitions
• Discussed at the September 2004 Board meeting: Concepts
• Discussed at the October 2004 Board meeting: Concepts

Background

This project would explore similarities and differences between the definitions of the elements (assets, liabilities, equity, revenues, expenses, gains, and losses) in the IASC Framework and the existing conceptual frameworks of national standard setters to determine whether there are differences that are impediments to convergence.

Discussion at the September 2004 IASB Meeting

At the April 2004 joint IASB/FASB meeting, the Boards discussed a staff proposal to undertake a joint project to develop a common (converged) conceptual framework that both Boards agree on and that improves on their two existing frameworks.

The purpose of today's session was to familiarise the Board with the issues that would be presented at the joint IASB-FASB meeting in October, for which a joint staff team will present a paper with joint staff recommendations.

The following are some of the issues that arose during this preliminary discussion:

• It was evident from discussion that both the IASB and FASB conceptual frameworks required improvement and not just convergence.
• During convergence, and consistent with the objective of improving the conceptual framework, due consideration would be given to any other existing conceptual frameworks, not just the IASB and FASB frameworks.
• The Boards' constituents will have the opportunity to comment on the improved and converged framework, as with to any other IASB pronouncement.

The point was made that such a project was in fact a major one that could not be classified as short-term; hence there was a need for the Board to segment and prioritise this project. There was however, no agreement on how to prioritise, with the Board agreeing to debate this again in October. The issues of concern in this regard were as follows:

• Segmenting the project would present challenges as generally the concepts within the framework are interrelated. For example, improvements and convergence on measurement issues could not be undertaken in isolation, as they required agreement first, on issues of 'what' to measure (definitions of elements etc) and 'when' (recognition criteria) to measure them.
• Process differences at the IASB and FASB, both in developing the pronouncement as well as on public consultation and other due process steps.
• Issues still to be dealt with on the Board's agenda which would have an influence on the conceptual framework. For example, the notion of an economic versus a reporting entity would only be dealt with when the Board addresses consolidations.
• The development of a conceptual framework, by its nature, is an on-going exercise.

The Board considered a similar project currently underway in Canada that may result work that is useful in the IASB-FASB project.

No decisions were made during this session.

Discussion at the October 2004 Board Meeting

At the previous joint meeting, the Boards discussed a staff proposal to undertake a joint project to develop a common conceptual framework for both Boards. The objective of this project is to develop a single framework that both converges and improves the existing frameworks of the two Boards.

There was general support for a framework that would apply initially to the private/business sector only, with its applicability to other sectors being considered later. Some Board members expressed the view that ultimately, they would prefer to have a framework that was applicable to every sector, despite that being a challenging project.

The following additional points were made during the discussion:

• Qualitative characteristics (such as reliability and relevance) should be dealt with early in the project together with recognition and measurement issues as these are intricately related.
• The issue of whether derecognition occurs when the recognition criteria cease to be met after initial recognition should be addressed.
• There is lack of a comprehensive disclosure framework. As a result, incremental disclosure requirements in individual standards are sometimes viewed as making financial statements difficult to comprehend. A disclosure framework should therefore be considered.

Staff gave an indication that a timeline of about five years was considered appropriate to complete this project. Some Board members expressed concern over this timeframe. Staff agreed to draw up a detailed project plan as well as consider the staffing requirements for this project.

There was general support for the staff recommendation that the conceptual framework should be a single document with the following structure:

• An executive summary that sets out all of the key concepts, similar to the 'highlights' section at the start of each FASB concepts statement.
• Following the executive summary, the main body of the conceptual framework would contain a section for each part of the framework, such as objectives, qualitative characteristics, elements, etc. Each section would contain all of the relevant key concepts, repeated from the executive summary, and accompanied by further explanatory material.
• A basis for conclusions, to explain why the Boards reached decisions on particular issues, including why they rejected any alternative approaches.

The point was made that staff should consider external assistance with the drafting and layout of the document in order to make it easy to read and generally more presentable.

The Boards agreed on a multi-phase project that would initially deal with convergence issues and improvements while focussing on the 'cross cutting' issues that have been problematic in the past. After that, the Boards will then deal with the issue of filling in the gaps in the existing frameworks.

The Boards supported a staff proposal that an initial document should be sent out to constituents for comment. That document would set out the issues facing the Boards related to the conceptual framework, without pre-empting Board deliberations on how the project will unfold. This suggestion was supported as it was seen by some members as a way of communicating with constituents as well as managing expectations.

The Boards also agreed to consider issuing a similar document drafted in non-technical language as was done by the ASB in the UK. A journalist may be approached in this regard.