Conceptual framework

Date recorded:

After a formal introduction by Hans Hoogervorst, Peter Clark provided a more detailed rationale for the IASB’s approach to revising the IASB’s Conceptual Framework. He noted that the phased approach adopted in the 2000s had not really worked, in that constituents were unable to comment on one chapter without reference to an (as yet) undeveloped chapter. Consequently, the IASB had decided to prepare a Discussion Paper on all remaining chapters of the Framework. However, to do so and keep it manageable, the IASB had to be disciplined about how many alternatives were included in each chapter and how many questions they could ask.

The ASAF were presented with the papers used at the IASB meetings in February and March 2013.


In a lively exchange of views, ASAF members noted that measurement and elements (assets, liabilities and debt/ equity) were inter-linked in many cases. Several examples of this linkage were identified.

A member suggested that the principles identified by the IASB started the discussion at a too detailed level: he would prefer to see an over-arching principle of what the financial statements were attempting to portray in the statement of financial position and representation of performance and how measurement informed that debate. Another noted that in some parts of the world, the concept of capital was fundamental to measurement.

As an example of this approach, it was suggested that once a measurement attribute had been chosen, it would be necessary to validate that choice against economic decision-making. For example, if historical cost and current value were materially different, one would ask which of historical cost and current value would be the decision-making attribute.

The role of Other Comprehensive Income

An equally lively exchange of views followed on the presentation of performance, ‘Net Income’ and the role of ‘Other Comprehensive Income.’ Well-known positions were presented: some defending net income, OCI and the necessity of recycling between OCI and net income for some items. Others advocated ‘clean surplus’ approaches. An over-arching principle was advocated here, too: that the predictive nature of numbers reported in the Income Statement should drive the measurement techniques and where value changes should be reported (which tied in to economic decision-making).

Several members suggested that the role of OCI, when it was available for use and why, should be resolved at the Framework level: this should lead to consistent decisions about whether to use it at standards-level. However, those who wanted to see a ‘proper’ measure on the balance sheet were prepared to use OCI as a means of keeping ‘noise’ out of net income (noting that this was a political expedient). OCI might be the place for reflecting measurement uncertainty/ reliability, short-term movements on long-term items, etc. Other members criticised such approaches as ‘reasons for having OCI looking for a principle’.

One member provided what might be the best summary of this session: it was unlikely that finding a rigorous principle for OCI was possible: the best alternative would be to provide tools to help the IASB decide on a consistent basis how and when to use OCI.

Elements of financial statements

The discussion of recognition of elements (assets and liabilities) quickly became a discussion of the role of prudence—caution in the exercise of professional judgement—in financial reporting. (No one at the table accepted ‘prudence’ as being a deliberate exercise in masking underlying economic reality.) Some were prepared to have a slightly higher recognition hurdle for assets as compared to liabilities, but others preferred to maintain symmetry between the two.

The ASAF discussed the proposed definitions of assets and liabilities. The common root of an ‘economic resource’ (a right, or other source of value, that is capable of producing economic benefits) was welcomed by several ASAF members.

ASAF members urged caution about embedding uncertainty into the definitions of elements. These members saw elements as an ‘existence’ problem: you had something (‘a good thing’) or owed something (‘a bad thing’): all else was a measurement issue. The measurement was rooted in faithful representation and the relevance to users of the information. This inevitably led to a discussion of ‘unit of account’, which was not resolved.

General discussion on the Framework

In a more general discussion, members noted several issues that remain of concern, including (but not limited to):

  • Derecognition – the problem here is that preferences vary depending on where in the economic cycle an entity or economy is.
  • Distinction between liabilities and equity (and re-allocations between these classifications).
  • Where financial statements fit into financial reporting and corporate reporting more broadly.
  • How to identify and measure elements of a transaction (especially in non-arms’ length situations).
  • The relationship between initial and subsequent measurement.
  • The reporting entity boundary
  • Constructive obligations and economic compulsion
  • Whether restricting the Framework to financial statements has an implication for standards such as IFRS 7, which ties into financial reporting more broadly.
  • Entity uncertainty and the going concern assumption.
  • Financial statement geography and what line items and sub-totals are tolerable in IFRSs.

Hans Hoogervorst noted that the discussion had demonstrated that there were a huge number of questions that were on the table: not all of them could be solved at this stage and it would be necessary to manage expectations. The ASAF was a critical sounding board for helping the IASB to decide what could be done now and what should be postponed. An ASAF member noted that this demonstrated that the Framework was an iterative process, with standard-setting informing the Framework and vice-versa.

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