Conceptual Framework Phase A — Exposure Draft on Objective and Qualitative Characteristics
'Accuracy' vs. 'free from error'
The Board discussed a drafting issue related to the forthcoming Exposure Draft (ED) of Phase A of the Framework. A Board member had objected to using the term 'accuracy' in place of 'free from error' as a component of faithful representation. The Board member was concerned that 'accuracy' could be interpreted as implying a level of precision that the Board did not (ever) intend. Other Board members noted that the problem might be exacerbated in translation. After discussion, the Board agreed to use the phrase 'free from material error' in place of 'accuracy' in the ED.
Comparable financial information
The Board noted that the pre-ballot draft ED states that '[p]ermitting alternative accounting methods for the same economic phenomena may be undesirable, because to do so diminishes comparability'. The Board agreed with a suggestion that the ED should expand on that notion and agreed that an accounting standard should not allow different entities to apply different accounting methods (or policies) for similar economic phenomena. The Board noted that when explicit accounting alternatives exist in an accounting standard, users were not harmed, because disclosure of which of the explicit alternatives has been chosen must be made. However, there was greater potential for harm to users when an accounting standard implicitly allows different accounting methods to account for a similar accounting phenomenon. In such circumstances, users may not be aware of the different ways to account for that accounting phenomenon.
The Board noted that this was an enhancing characteristic of general purpose financial reporting that was of particular relevance to standard-setting activities, and that accounting standards should be clear and unambiguous.