IASB and FASB issue two Conceptual Framework proposals
May 31, 2008
The IASB and the US FASB have published similar consultative documents on two of the eight phases of their joint project to develop an improved conceptual framework.
- Exposure Draft: Chapters 1 and 2 of the Conceptual Framework (Objective and Qualitative Characteristics)
- Discussion Paper: Preliminary Views – The Reporting Entity
Exposure Draft (ED): Chapters 1 and 2 of the framework (Objective and Qualitative Characteristics)
This ED addresses the objective of financial reporting, the qualitative characteristics of information provided by financial reporting, and constraints on the provision of that information. The draft reflects the boards' updated proposals in the light of comments received on an initial consultation document published in July 2006. The ED proposes the following objective of financial reporting:
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors in making decisions in their capacity as capital providers. Capital providers are the primary users of financial reporting. To accomplish the objective, financial reports should communicate information about an entity's economic resources, claims on those resources, and the transactions and other events and circumstances that change them. The degree to which that financial information is useful will depend on its qualitative characteristics.The ED also presents an improved description of 'faithful representation' – one of the qualitative characteristics that financial information should possess if it is to provide a useful basis for economic decisions:
To be useful in financial reporting, information must be a faithful representation of the economic phenomena that it purports to represent. Faithful representation is attained when the depiction of an economic phenomenon is complete, neutral, and free from material error. Financial information that faithfully represents an economic phenomenon depicts the economic substance of the underlying transaction, event or circumstances, which is not always the same as its legal form.
Discussion Paper: Preliminary Views – The Reporting Entity
The second document published sets out the boards' preliminary views on the reporting entity concept and related issues. Although the reporting entity concept determines some important aspects of financial reporting, the boards' existing frameworks do not address it specifically. The boards' preliminary views are: