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Conceptual Framework Phase A — Objective and Qualitative Characteristics

Date recorded:

The objective of this session was to discuss concerns raised by respondents regarding the objective of financial reporting. The staff introduced the topics by noting that the ED proposed that the objective of financial reporting should encompass all decisions made by capital providers of a reporting entity in their capacity as capital providers. Such decisions will induce resource allocation decisions and decisions made to protect and enhance their investments. Most respondents agreed with the proposed objective. The board was asked to confirm that the objective should be broad enough to encompass all the decisions that equity investors, lenders and other creditors make in their capacity as capital providers.

One board member noted that all decisions cannot be included, and recommended that the wording be amended in the question. The staff agreed, and subject to rephrasing the question, the board agreed with the objective.

The board then discussed whether the objective should be for financial reports or financial statements. The board agreed that the focus should be on the objective of financial reporting and the scope should not be limited to only financial statements at this time. A later phase will deal with more specific issues relating to boundaries of financial reporting.

The staff then advised the board that a group of respondents had expressed concern about the ED's discussion of economic phenomena and information that depicts economic phenomena. The concern is that it could be misunderstood as excluding or precluding forward-looking or prospective information or management commentary. The staff proposed revisions to the discussion to address these concerns. The board agreed with the proposed revisions.

The primary user group, entity perspective and parent company approach

The first question addressed by the staff was what should financial reports report on? The staff noted that the entity is the focus of financial reporting, rather than the owners or other who have an interest in it. The feedback from respondents to this was while there were differing views among respondents regarding other aspects of the entity perspective, no respondent disagreed that the reporting entity is separate from its owners. The staff recommended that financial reports of the reporting entity report on the financial position and changes in financial position of the entity and do not include the financial positions and changes in financial position of the entity's owners. The board agreed. One board member noted that this decision may need to change if the board agrees at a later date to cover non-profit or co-operative type entities. The staff further recommended that in the context of a group reporting entity that financial reports of the entity report on the financial position and changes in financial position of the group, rather than the financial position and changes in financial position that are attributable to a specific group of capital providers. The board agreed with the staff recommendation in principle; however, a number of board members were concerned that the recommendation read such as to exclude reporting for common shareholders. This was not the intention of the staff recommendation, and the staff agreed to rephrase the question so that it was clear.

The next issue addressed by the staff was whether the general purpose financial reports should focus on a primary user group. In the Objective ED the Boards proposed that the presentation of general purpose financial reports focus on a primary group that consists of present and potential equity investors, lenders and other capital providers. The staff noted that most respondents supported having a primary user group; however, a group of respondents, the Publish What You Pay group, argued that the IASB had failed in its mandate to consider the special needs of emerging economies by identifying a primary user group, particular in their choice of the primary user group. The staff recommended that the board confirms having a primary user group. The board agreed.

The staff then outlined responses from those who supported having a primary user group. There were differing views regarding who the primary users should be from respondents. Most supported the proposed primary user group (the present and potential equity investors, lenders and other creditors), however other suggestions from respondents included management, employees and governments.

Some respondents also stated that there should be a hierarchy of primary users because each type has different information needs that may conflict with one another. Other respondents stated that the term capital provider implies a focus on providers of equity capital and recommended that the term resource providers be used instead.

The staff asked the board if the term capital providers should be replaced with resource providers. The board did not support the change.

The staff asked the board if the primary user group should consist of present and potential equity investors, lenders and other capital providers. The board agreed.

The staff asked the board if there should be a hierarchy within the primary user group. The board did not think there should be such a hierarchy. The board agreed that the term entity perspective and related labels should be removed. The board directed the staff to commence drafting the final Chapters.

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