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Conceptual framework

Date recorded:

Elements of financial statements: definitions of asset and liability

This agenda paper discusses the definitions of an asset and liability. The staff recommended in this paper that the IASB should:

  1. Confirm the following definitions, which are the same as the definitions proposed in the Discussion Paper, with one exception noted in (2) below:
    • Asset of an entity: a present economic resource controlled by the entity as a result of past events;
    • Liability of an entity: a present obligation of the entity to transfer an economic resource as a result of past events;
    • Economic resource: a right that is capable of producing economic benefits
  2. Delete the phrase 'or other source of value' from the definition of an economic resource that was proposed in the Discussion Paper.

The Technical Director introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendations in the paper.

 

Separate definition of economic resource

Several Board members commented with respect to this paper. One Board member noted that while he did not object to the staff recommendation, he believed the current definition was easier to read as everything was in one place. Another Board member noted that he believed the change was a major improvement and that it helped with conceptual questions – whether an asset existed, whether it should be recognised, and how it should be measured.

Fifteen of the sixteen Board members present agreed that the reference to future economic benefits should be placed in a supporting definition (of economic resource), rather than in the definitions of an asset and of a liability.

 

Focus on rights

A Board member noted that she agreed with the change to the focus on rights and said that it was an important clarification in the Conceptual Framework. She acknowledged that the change would result in questions being raised and that these questions would be dealt with at the standards level, for example, how to think about unit of account and how it would be applied in specific contexts.

Another Board member highlighted the importance of the Board communicating that this change was not intended to result in a radical new approach to how everything in every standard was assessed. He added that it was important that it was communicated that the bifurcation of rights was an exception rather than a rule (for example, when splitting out ownership of a single asset) and would only be done in situations where it was relevant to do so.

Another Board member also noted that he did not believe the proposal implied that all rights needed to be bifurcated when accounted for and that this would only be done in specific circumstances as required by individual standards. He noted that it was not unusual for an asset to have several owners and provided the example of a cargo ship that had 1,000 owners. He said that the only way the owners could account for their ownership would be through their rights, not through the physical asset.

Another Board member pointed out that where tensions arose was with financial assets. He asked whether, if an entity had a receivable comprised of 5,000 cash flows, each cash flow would be a right and therefore an asset, or whether the cash flows would be considered a bundle of rights. The Technical Director noted that this would be considered in the unit of account discussion.

All Board members agreed with the staff recommendation that assets should be viewed as rights, or bundles of rights, rather than as underlying physical or other objects.

 

Other source of value

A number of Board members noted that they were supportive of the staff recommendation to delete the notion 'other source of value' from the definition of an economic benefit. One Board member noted that deletion was necessary, as the Board had agreed in a previous paper that an asset should be defined as a right or a bundle of rights, and accordingly, if an economic resource was defined as a right or other source of value, it could suggest that something could be an economic resource but not an asset because it was not a right. Another Board member noted that the words could be misused, as a number of types of value could exist that an entity did not control, but might benefit from in one way or another.

The issue was raised by several Board members as to whether the removal of 'other source of value' would make it more difficult to get to goodwill as an asset. The Technical Director noted that he did not believe so and added that goodwill would be discussed at the June Board meeting.

Fourteen Board members agreed to delete the notion 'other source of value' from the definition of an economic resource as suggested in the Discussion Paper.

 

Capable of generating economic benefits

Several Board members expressed concerns that the term 'capable' might not be easily understood and that, if the Board chose to go down this path, it would need to communicate very clearly what was meant by the term. There were also concerns expressed that the change would result in asymmetrical asset and liability definitions and of the translation of the word into different languages.

The Technical Director explained that the reason 'expected' was in the current Conceptual Framework was to address the fact that something may not be certain. He acknowledged that this was not documented anywhere, so people had read it as trying to introduce some sort of threshold. He noted that if the Board wanted to keep 'expected', there would need to be discussion added with respect to what was meant by 'expected'.

Other Board members supported the use of the term 'capable' in the definition, but noted that it was important that 'expected' was dealt with in the recognition section and that the interaction between the definition and recognition criteria was clear.

Another Board member questioned how the more encompassing notion of what an asset and a liability would impact the financial statements from a disclosure perspective. The Technical Director responded and noted that there would be comment in the disclosure section to the effect that financial statements are about existing assets and liabilities and changes in them, both recognised and unrecognised assets and liabilities. Accordingly, he noted that all assets and liabilities, both recognised and unrecognised, would be potential candidates for disclosure. The Board member noted that it was important that the Board communicated that considerations such as relevance, faithful representation, cost/benefit were taken into account by preparers of financial statements to provide some sort of constraint with respect to the assets and liabilities that would be required to be disclosed, and that the expectation was not for preparers to have to hunt for things to disclose them.

Twelve Board members agreed that the definitions of assets and liabilities should not retain the notion that an inflow or outflow is 'expected'. Further, twelve Board members agreed that the definition of an economic resource should specify that an economic resource must be capable of generating economic benefits.  The term 'capable' indicated that the economic benefits must haven arisen from some feature that already existed within the economic resource. The term 'capable' was not intended to impose a minimum probability threshold. The important thing was that in at least some outcomes the economic resource would generate economic benefits.

Lastly, ten Board members agreed that the notion 'is capable of' should not appear explicitly in the proposed definition of a liability. The supporting guidance should clarify that an obligation must contain an existing feature that is capable of requiring the entity to transfer an economic resource.

 

Past Event

One Board member noted that he strongly disagreed with retaining the phrase 'as a result of past events' and noted that there were many situations where the existence of an asset or liability could be established and then a big exercise had to be performed to find the past event. He acknowledged that there were times when a past event needed to be identified, but that this was a lower level test and that, in many situations where it could be established that a present obligation or present economic resource existed, identifying the past event was redundant.

Another Board member supported the comment made and added that there were situations where a present liability could be determined, but the past event could not be identified, as, for example, it may have arisen as a result of a series of events, and that not recognizing an asset or liability because a past event could not be identified was not correct. He further noted that the 'present' notion implied that a past event must have occurred.

The Technical Director highlighted the fact that in the development of the Discussion Paper, the staff had initially proposed not to include past events in the definition. He noted that there had been a long discussion by the Board on this issue, and the staff believed that, if the Board had spent so long discussing whether any changes were intended by the omission of this aspect of the definition, the same would apply to the outside world, and accordingly, the staff brought the notion of a past event back into the definition.

All Board members agreed that the term 'present' should be retained in the proposed definition of a liability and that the term 'present' should be added to the proposed definition of an asset, as proposed in the Discussion Paper. Fourteen Board members agreed that the phrase 'as a result of past events' should be retained in both the definition of an asset and the definition of a liability.

 

Recognition

This agenda paper was devoted to recognition. The paper recommended that the Conceptual Framework should not include explicit recognition criteria. Instead, it should provide a narrative discussion of the thought process to go through in making recognition decisions, along the lines indicated in paragraph 19 of the paper. The Technical Director introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendations in the paper.

Several Board members challenged the ‘thought process’ idea set out in paragraph 19 of the paper. They noted that just describing a process was too unreliable a way of providing guidance and asked the staff to come back with something that looked more like criteria, but that also had some sort of override built into them.

Another Board member observed that there was no ranking of the items in paragraph 19(b) and noted that because of this. it could be read as ‘if one item is not satisfied, the asset or liability is not recognised’. She noted that, for example, in the case of a difficult to measure Level 3 financial instrument, there may be no existence uncertainty and good probability of an inflow of economic benefits, but the instrument may be difficult to measure, and noted that this should not be a reason for not recognising it. She added that the only situation where it should not be recognised would be if recognising it would provide less relevant information than no number at all.

There was a lot of discussion with respect to whether or not the probability threshold should be removed from the Conceptual Framework.

Some Board members agreed with removing the probability threshold from the Conceptual Framework. One Board member noted that the current definition raised questions about how much uncertainty there had to be in order for an asset or a liability to be recognised or not, and did not deal with a minimum threshold. He added that by taking probability out of the Conceptual Framework and making it a standards level decision, better guidance and specificity would be brought to the standards the IASB would write, and assets and liabilities that should potentially be recognised would not be ruled out on an initial basis. Another Board member also shared this concern, and noted that non-recognition should be a very high threshold. A further Board member also raised the issue of different interpretations of ‘probable’ in different jurisdictions.

One Board member noted that he preferred to retain probability in the Conceptual Framework as a “fall back” position rather than ending up in a situation where everything had to be recognised unless a standard said otherwise. Another Board member suggested retaining probability in the Conceptual Framework and providing exemptions as to why, in certain circumstances, there would be exemptions from it – noting that this would be easier than having the question in every standard. Another Board member was concerned with removing probability from the recognition criteria because of the implicit or explicit message the Board might be sending that all uncertainty could be dealt with as a measurement issue and noted that it also raised concerns with respect to the requirement to search for everything possible. A further Board member also expressed concern that if ‘expected’ was removed from the asset definition, and probability was removed from recognition, it could be interpreted as ‘anything goes’ when recognising assets.

When called to a vote, nine Board members agreed with the staff recommendation.

 

Elements – Approach to defining income and expense

This agenda paper discussed the approach to defining income and expense. In the paper the staff recommended that the Conceptual Framework should continue to define income and expense by reference to changes in assets and liabilities. The Technical Director introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendations in the paper.

There were no significant comments raised by Board members. Fifteen Board members agreed with the staff recommendation.

 

Reporting entity – General

The agenda paper for this subject dealt with various issues related to the reporting entity. The following subjects were addressed in the paper: description of a reporting entity, control of an entity, joint control and significant influence, boundaries of a reporting entity, unconsolidated financial statements and consolidated financial statements; and combined financial statements. A staff member introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendations in the paper.

One Board member suggested clarifying in the wording that unincorporated entities, or portions of unincorporated entities, could qualify as reporting entities. She also commented with respect to combined financial statements and wondered whether it would be beneficial to add a high level comment in the Conceptual Framework that addressed some of the concerns about combined financial statements and what should be included in combined financial statements. She suggested that language be added along the lines of ‘If it is not the whole of a legal entity, one needs to determine whether it gives a true and fair view of the activity it purports to represent’.

Another Board member expressed concern that a preparer could potentially prepare financial statements omitting the bad parts that would still be IFRS compliant because of the lack of guidance about what a portion of an entity was or was not.

Another Board member noted that he did not believe the chapter was even necessary. He noted that he favoured a brief discussion on the topic in the introduction to the Conceptual Framework.

Another Board member noted that the paper stated that when an entity reported on an unconsolidated basis it should also report on a consolidated basis or at least indicate how such information could be found. He pointed out though that the same requirement did not exist when an entity reported as a portion of an entity. He questioned why, if unconsolidated financial statements were misleading when not accompanied by consolidated financial statements, the financial statements of a portion of an entity would not be misleading absent the description of the full entity.

Another Board member questioned whether, if an entity chose or was required to present general purpose financial statements, that those financial statements would necessarily have items that met the definitions of assets or liabilities. She noted that the definition of an asset had the notion of control and noted that often a portion of an entity would not control the assets the whole entity had assigned to it, and questioned whether it should be made clear that just because a portion of an entity qualified as a reporting entity, it did not mean that any assets or liabilities could be reported, and that the assets and liabilities reported still needed to meet the Conceptual Framework definitions.

Another Board member pointed out that there was no guidance in IFRSs around what a preparer of a portion of an entity should do, and accordingly, that he did not agree with the inclusion of a portion of an entity in the definition of a reporting entity.

The Board members voted on the 7 recommendations set out in the paper (as Questions 1 through 7):

  • Question 1 – Thirteen Board members agreed with the staff recommendation
  • Question 2 – Twelve Board members agreed with the staff recommendation
  • Question 3 – All Board members agreed with the staff recommendation
  • Question 4 – The Board did not vote on this recommendation, as the recommendation was considered redundant, as if it could be accepted that an entity had to prepare consolidated financial, and could also prepare unconsolidated financial statements, it would not be OR, but both.
  • Question 5 – Thirteen Board members agreed with the staff recommendation
  • Question 6 – Eleven Board members agreed with the staff recommendation
  • Question 7 - Twelve Board members agreed with the staff recommendation

 

Reporting entity – Perspective

This agenda paper was about the perspective from which financial statements should be prepared. The staff recommended that the IASB confirm its view that financial statements should be presented from the perspective of the entity as a whole. A staff member introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendation in the paper.

One Board member made reference to the discussion in paragraph 29 of the paper that states that “…presenting financial statements from the perspective of the entity as a whole does not mean that the information needs of the parent entity’s shareholders would be ignored”. He believed that a much more positive statement was needed with respect to the importance of the information relevant from the perspective of parent company shareholders and that financial statements should provide them with the information required to understand their position, and to make decisions. He noted that the information required to enable common shareholders to determine the impact that other equity holders had on their returns was currently poorly communicated, and further added that he believed that if the parent company shareholder perspective was more prominent in the Conceptual Framework, it may have led to more prominent information being presented about some of the other classes of equity in past projects.

Several other Board members noted that they agreed with the point raised by the previous Board member, and one Board member added that in addition to other equity claimants, another class of capital providers that needed to be addressed was lenders. He further noted that a major shortcoming of the entity perspective was that it treated all classes of equity holders the same and caused leverage ratios such as debt/equity to be understated because a non-controlling shareholder was not the same as a shareholder of the parent company but gave the perspective that they were. He added that accordingly, it was important that supplementary information was provided.

The Chairman suggested that the staff looked into the concern raised in the above discussion. Fifteen Board members agreed with the staff recommendation.

 

Going concern

In the next agenda paper the staff presented its proposals for incorporating the going concern assumption into the revised Conceptual Framework in the light of the feedback received on the IASB’s Discussion Paper. The staff recommended that:

  1. the going concern assumption should be treated as an underlying assumption. The revised Conceptual Framework should include the current description of the going concern assumption with the amendments suggested in paragraph11 of the agenda paper;
  2. the IASB should not provide additional guidance on the going concern assumption in the Conceptual Framework;
  3. the IASB should not address guidance on the preparation of financial statements by entities that are not going concerns as part of this project; and
  4. the IASB should not address additional disclosures about going concern as part of this project.

A staff member introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendation in the paper.

One Board member commented with respect to the choice of words in the amendment to the description of the going concern assumption, and suggested that ‘cease trading’ could be replaced with 'cease operating' as he believed trading was not as easy to understand. However, another Board member highlighted the fact that the staff had stated in the paper that the reason for using the words 'cease trading' was to align with the wording in IAS 1 and IAS 10.

Another Board member referred to paragraph 7 of the paper, which summarised feedback received on the Discussion Paper, and noted that several of the points were valid concerns but should be addressed at the standards level. Accordingly, she agreed with the staff recommendation not to address the concerns in the Conceptual Framework project.

The Board member also raised the issue of the impact of the going concern assumption on other areas of the Conceptual Framework (such as the link between the going concern assumption and identifying a present obligation) and noted that she believed there were several areas where more could be done to articulate how one should consider the going concern assumption when reaching certain decisions. Fourteen Board members agreed with the staff recommendation.

 

Stewardship

This paper was devoted to the question whether Chapter 1 of the Conceptual Framework should give more prominence to the idea that financial statements should provide information to help users assess the stewardship of management. Four approaches are discussed in the paper:

  • Approach 1 – Do nothing
  • Approach 2 – Include an explicit reference to stewardship
  • Approach 3 – Increase the prominence of stewardship within the overall objective of financial reporting
  • Approach 4 – Treat stewardship as an additional objective of financial reporting, separate from decision-usefulness

The approach recommended by the staff is Approach 3. The Technical Principal introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendation in the paper.

One Board member noted that he agreed with Approach 3; however, he did not agree with the comment in the paper that the information needed to assess the stewardship of management was separate from the information needed to assess the prospects for future net cash inflows to the entity. He noted that use of the word ‘separate’ indicated the existence of two different sets of information, which was not accurate given that a lot of the information used to assess the two criteria would be the same.

Another Board member expressed concern that Approach 3 could be read as two criteria that had to be met in order for the overall objective to be met. He questioned whether information that did not meet one of the criteria would not satisfy the overall objective, and whether this could affect measurement or presentation. The Technical Principal responded that the idea of the recommended approach was not to create separate objectives, but to have the overall decision usefulness objective as overarching objective and acknowledge that information would be needed to assess future cash flows and information would be needed to assess stewardship of management. In many cases they would be similar sets of information, in some cases they might be different and preparers should look at providing that information if they believed it would be useful to users.

The Chairman pointed out that in the current Conceptual Framework stewardship was submerged into the goal of estimating future cash flows. He noted that there was a 90% overlap between the two goals and that he strongly supported the proposal to increase the prominence of stewardship as this was one of the sets of information investors wanted.

Another Board member suggested that, in order to address the fact that a lot of the information used to assess the two criteria would be the same, a separate paragraph could be included as OB5 that stated that ‘the information that was useful to assess the prospects for future net cash inflows to the entity was also useful for assessing stewardship and also state the additional information that could be useful to assess stewardship.

A Board member wondered whether stewardship and resource allocation decisions could ever lead to different recognition and measurement. The Technical Principal noted that additional information could be needed to enable the assessment of the stewardship of management, and noted that she could not see any situation where a conflict would arise.

Another Board member questioned whether, if the Board agreed with Approach 3, the objective of the measurement chapter would be changed. The Technical Principal responded that the staff had not gone far enough on the measurement chapter to know the direction that would be taken. She commented that some of the feedback received on the measurement objective was that it was not particularly useful, and that the staff may ask the Board whether an overall measurement objective was needed at all. She further added that if it was agreed that an overall measurement objective was needed, that it would need to be ensured that the wording was consistent with the final wording in Chapter 1.

Fifteen Board members agreed with the staff recommendation.

 

Reliability

The next agenda paper discussed whether a reference to 'reliability' should be included in Chapter 3 of the Conceptual Framework. The staff did not recommend:

  • Replacing the qualitative characteristic of faithful representation with reliability;
  • Including reference to reliability as either an additional qualitative characteristic or as an aspect of either of relevance or faithful representation.

The Technical Principal introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendation in the paper. A number of Board members noted that they supported the staff recommendation.

One Board member noted that she supported the staff recommendation, particularly for the reason set out by the staff in paragraph 24 of the paper, with respect to the potential for tension between a difficult to measure item and the relevance of that item.

Another Board member noted that although he supported the staff recommendation, he was concerned that the removal of the word 'reliability' had resulted in some people misunderstanding or intentionally misunderstanding that IFRSs were not reliable. He noted that in order to avoid such intentional misunderstanding or criticism, the Board could introduce wording around credibility. He noted that the fact that financial statements should be credible was a key concept that should be acknowledged in the Conceptual Framework, not in Chapters 1 or 3, but perhaps in the introduction or preface.

Several other Board members noted that they would not support introducing additional wording with respect to credibility, with one Board member noting that he agreed that financial statements should be credible, but noted that faithful representation conveyed more. He further noted that reliability was not black and white and that there were many different degrees of reliability. He highlighted the fact that a preparer of financial statements would not fail to recognise an asset or liability that was based on an estimate with a lesser degree of reliability. Accordingly, he felt that reliability should not be included in the Conceptual Framework.

All Board members agreed with the staff recommendation.

 

Prudence

The penultimate agenda paper discussed whether and, if so, how to reintroduce a reference to prudence into the Conceptual Framework. The staff recommend that the Exposure Draft of the Conceptual Framework should:

  1. Reintroduce a reference to prudence in the Conceptual Framework;
  2. Describe prudence as the exercise of caution when making judgements under conditions of uncertainty to ensure that assets or income are not overstated and liabilities or expenses are not understated;
  3. Discuss in the Basis for Conclusions on the Conceptual Framework the need for:
    1. Preparers to exercise prudence in preparing financial statements; and
    2. The IASB to exercise prudence when setting standards;
  4. Explain that prudence is consistent with neutrality and does not allow for the deliberate overstatement of liabilities or expenses or understatement of assets or income.

The discussion opened with the Technical Principal providing the Board members with feedback received from meetings held with investors in relation to the reintroduction of prudence and the draft wording in the paper. The staff noted that investors had a range of views on both issues. The investors spoken to were from a number of jurisdictions.

Some investors agreed with the reintroduction of prudence, as they believed prudence was required for economic stability and growth and saw it as a crucial part of corporate governance and for ensuring executives were incentivised to create long term value. They also equated prudence with a true and fair view. They saw it could be used as a tool by auditors to help counterbalance management’s optimism in making estimates and determining the appropriate value to use in a range. They were not sure the proposed wording would go far enough, and requested the Board to consider additional wording. Other investors agreed with the reintroduction of prudence, as long as it was not reintroduced in a way that would introduce bias into the preparation of financial statements. They noted that prudence should be related to the use of caution in situations of uncertainty or where a high level of judgement was involved, and should not undermine neutrality. Other investors expressed concerns about the reintroduction of prudence and were primarily concerned with whether it was being given too much prominence by being included in the Conceptual Framework. They thought it might be better to put a discussion of prudence in some individual standards where warranted.

A number of Board members noted that they were supportive of the reintroduction of prudence and the general direction of where the staff recommendation was going, but stressed that reintroducing prudence should not result in neutrality being compromised.

There were some concerns raised by Board members with respect to the draft wording in the paper. One Board member was concerned with the wording in paragraph QC14A of the Appendix. She noted that the statement ‘to ensure that assets or income are not overstated and liabilities or expenses are not understated’ was not a neutral statement, and that to be neutral, the statement should read ‘to ensure that assets, liabilities, income and expenses are not overstated or understated’. Several other Board members agreed with this comment, and one Board member noted that this could result in the wording being shortened considerably, as the words ‘overstatement’ and ‘understatement’ were used numerous times in the draft wording.

Another Board member expressed concern with respect to the wording around prudence counteracting the incentives for management to introduce bias in financial statements. He noted that if wording to this effect was included in the Exposure Draft, the Board would likely receive a lot of negative feedback from preparers, and noted that plenty of checks and balances existed in the system for management to act responsibly. The Vice-Chairman strongly agreed with this comment, and suggested that the third sentence in BCX of the paper should be removed.

Several Board members commented with respect to the wording that made reference to the Board. One Board member noted that if the Conceptual Framework wording stated that everything should be neutral, there was no need to make reference to different parties. Another Board member noted that the references to preparers and the Board resulted in two definitions of prudence being buried in BCXA and questioned how the statements in the first two sentences of BCXA could be reconciled. He recommended that the second sentence was removed. Another Board member noted that it might be useful to have a discussion in the Basis for Conclusions with respect to what the notion of caution in the face of uncertainty would mean for different parties. Another Board member pointed out that there was previously no reference to the Board in the Conceptual Framework, and questioned what the impact would be if it was introduced.

A number of Board members noted that they supported the reintroduction of prudence as it met a need for guidance that stated that ‘when dealing with uncertainty, be cautious in your estimate’. One Board member observed that a benefit that would come from making the notion of caution and care explicit was that an extra tool would be given to auditors and regulators to assist them with the implementation of the Board’s standards and added that, accordingly, this was a helpful clarification in the Conceptual Framework. Another Board member also suggested adding more wording around what the Board meant by ‘conditions of uncertainty’ as this was quite a broad statement.

Another member questioned whether prudence should be an enhancing characteristic of the fundamental characteristic of faithful representation, as in order for faithful representation to be achieved, prudence was needed, and the relationship should be made clear.

Only one Board member noted that he was generally against reintroducing prudence and giving it too much prominence in the Conceptual Framework. He noted that he was a strong supporter of neutrality and feared that reintroducing prudence could introduce some sort of bias in financial statements. However, he noted that if the staff were able to reflect prudence as supporting neutrality, he could support reintroduction.

When called to a vote, all Board members agreed with the staff recommendation that a reference to prudence should be reintroduced in the Conceptual Framework. Also, all Board members agreed with describing prudence as ‘the exercise of caution when making judgements under conditions of uncertainty’, but a number of members expressed concerns with the wording in the second part of the sentence (‘to ensure that assets or income are not overstated and liabilities or expenses are not understated’), as discussed above, so it was agreed that that staff would work on amending this wording. Finally, eleven Board members agreed to discuss in the Basis for Conclusions on the Conceptual Framework the need for preparers to exercise prudence in preparing financial statements and for the Board to exercise prudence when setting standards.

 

Chapters 1 & 3 – Other possible changes

The final agenda paper for the meeting was devoted to the subject whether changes should be made to Chapter 1 – The objective of general purpose financial reporting or Chapter 3 – Qualitative characteristics of useful financial information of the Conceptual Framework. The possible changes discussed in the paper were suggested by respondents to the IASB’s Discussion Paper.

The Technical Principal introduced the paper and asked the Board whether they had any comments on the paper and whether they agreed with the staff recommendations in the paper. There was no significant discussion by the Board with respect to this paper:

  • All Board members agreed with the staff recommendation to amend Chapter 3 to explain that, when the legal form of an item is different from its underlying economic substance, reporting that item in accordance with its legal form would not result in a faithful representation.
  • All Board members agreed with the staff recommendation that no changes should be made to the description of the primary user group identified in Chapter 1.
  • All Board members agreed with the staff recommendations not to elevate understandability from an enhancing characteristic to a fundamental qualitative characteristic, or to add a discussion of complexity to the Conceptual Framework.

 

 

Correction list for hyphenation

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