Conceptual framework

Date recorded:


At the March meeting, the IASB resumed its deliberations on their project to revise the Conceptual Framework. The IASB published exposure draft ED/2015/03 Conceptual Framework for Financial Reporting in May 2015. The IASB invited comments on the exposure draft until November 2015.

The staff analysed the comment letters received. The comment letters showed that most of the respondents support the IASB’s decision to revise the Conceptual Framework. The staff prepared a high-level summary of the comments received on each major section of the exposure draft.

The purpose of the session was to provide the Board with an overview of the comments.  The Board was not asked to make any technical decisions in this session.  The staff would bring more detailed papers back on particular topics.


The Board did not make particular decisions on the topics presented. The discussion was based on providing feedback to the comment letters received.

The staff clarified that many respondents indicated that the Conceptual Framework should be a “living document” when the Board considered that there were new issues. The staff indicated that this idea would be discussed at a strategy meeting next month. The staff would also bring to the next meeting a discussion paper about the purpose of the Conceptual Framework.

There were comments related as to how the effects on the Conceptual Framework should be tested (i.e how it would change existing Standards; how it would change Standards being developed and how it would affect areas where there were no Standards). The staff responded that the comments were not particularly focused on any specific approach. There were concerns noted that it seemed that there was an expectation that there would be changes in existing Standards derived from the Conceptual Framework. In that regard, it was pointed out that it would be a separate decision whether or not to change existing Standards,

There were more specific concerns about the research project on Financial Instruments with Characteristics of Equity (FICE) because it could have significant implications on the Conceptual Framework. Another concern noted was that the Board should have the goal to align at a certain point the Standards with the Conceptual Framework.

See discussion below for each topic.

Chapter 1 – The objective of general purpose financial reporting

Many constituents agreed with the treatment of stewardship in the exposure draft but some requested more guidance on the term ‘stewardship’ and its relation to the word ‘accountability’; on how the increased focus on stewardship will affect future standard-setting; and on the link between the stewardship discussions and the discussions around the objective of financial reporting. Some respondents suggested adding stewardship to the objectives of financial reporting.


There was an extensive debate on the concept of stewardship. Some Board members indicated that it seemed there was different understanding of the meaning of stewardship. There were concerns that some respondents considered that stewardship implied the use of cost-based accounting measurement, because it was believed to be less volatile. One Board member suggested linking the mission statement of the IASB, which focused on serving public interest and promoting rigorous reporting Standards, with the Conceptual Framework so that it would be clear what the Board meant with the concept of stewardship. The Chairman agreed that more work would be necessary in this area, he also pointed out that management accountability was more than the investors assessment of “buy/sell/hold”. 

There was also a discussion about the role of regulators. The Chairman disagreed with some of the comments stating that regulators should be considered as primary users of financial statements. He believed that regulators worked on behalf of investors and creditors and were “agents” of the primary audience.

Another comment on this topic was that accountability should be considered in relative terms rather in absolute terms as to the mission given to management. Even though management could perform well, it would not automatically mean that investors would not sell shares of the company because for example other investments could be more attractive at that particular time. Management should not be responsible for market changes or new technology. In that regard, it was also indicated that best corporate management practices tended to align assessment of management performance with external reporting. The Chairman suggested discussing further the concept of stewardship at future meetings.

Chapter 2 – Qualitative characteristics of useful financial information

Many of the comment letters welcomed the reintroduction of prudence to the Conceptual Framework. Some argued that the Conceptual Framework should state in its main body that selecting asymmetric accounting policies for gains and losses is possible if such selection is intended to result in relevant information that faithfully represents what it purports to present.

With regard to measurement uncertainty, respondents suggested it should be explained as an aspect of either relevance and faithful representation, or reliability. Some suggested reintroducing reliability as a qualitative characteristic.


Among the main comments made during this discussion were:   

  1. there was support from some Board members on the suggestion to use the word “unbiased” instead of neutral to avoid misunderstanding, it was pointed out that the word neutral implied a mathematical centre. It was also suggested that it would also be useful to introduce the concept of “credibility” and it should be explained that “unbiased” meant to achieve credibility and that was that prudence was all about.  The staff responded that “unbiased” could also imply a mathematical centre;
  2. it should be important to explain that the Board intended not to change this chapter other than in very limited circumstances;
  3. the definition of the word “prudence” in a dictionary had a different meaning from the one intended by the Board, which was more consistent with neutrality and it was suggested not to use the word “prudence”;
  4. it was pointed out that the suggestion in paragraph 14 of the agenda paper which indicated that neutrality should be a starting point was a good alternative and asymmetry should only be incorporated if there was a valid reason; and
  5. it seemed that the concept of neutrality was not commonly understood and it was necessary to clarify what the Board meant in using this concept.

Chapter 3 – Financial statements and the reporting entity

Many respondents supported the proposals on the description and boundary of a reporting entity. However, some of them think more guidance is needed. While there was general support for the use of control to determine the boundaries of a reporting entity, some respondents found the terms ‘direct control’ and ‘indirect control’ confusing as they were not used in IFRS 10.

As regards combined financial statements, some respondents supported the idea but asked for guidance on when preparing combined financial statements might be appropriate. Many respondents disagreed with the statement that consolidated financial statements were more likely to provide useful information than unconsolidated financial statements. The proposed description of going concern was supported by many while views were mixed about the statement that financial statements are prepared by the entity as a whole rather than from the perspective of any particular group of investors, lenders and other creditors.


Few comments were made on this topic. It was suggested to provide more guidance on combined financial statements and explore more the concept of usefulness of consolidated vs unconsolidated information.

Elements of financial statements – Assets

While regulators, standard-setters, accountancy bodies, accounting firms and individuals broadly supported the proposed changes to the definitions for an asset and a liability, the views of preparers of financial statements were more divided. Those who disagreed with the definitions were concerned about the proposed replacement of the notion ‘expected’ economic benefits with ‘potential to produce’ economic benefits. Their main concern was the increased population of assets and liabilities and the fact that, together with the proposed recognition criteria, more low-probability items would be recognised in financial statements.

Furthermore, some respondents expressed a desire for more guidance on selecting a unit of account and some respondents disagreed with the proposal that executory contracts give rise to a combined right and obligation that constitutes a single asset or liability. In their view, executory contracts give rise to a separate right and a separate obligation.

See discussion below

Elements of financial statements – Liabilities and Equity

Many respondents agreed with the definitions of a liability and equity. Some respondents suggested prioritising problems that arise in classifying financial instruments with characteristics of both equity and liabilities. However, most of the respondents agreed with the IASB’s decision to explore those problems in a separate project.

Many respondents agreed with the proposed description of ‘present obligation’. However, most banks disagreed with the proposed description. They expressed concern about the implications for the classification of claims as liabilities or equity. Some respondents believed that the description or accompanying guidance could be difficult to interpret and implement.

See discussion below

Elements of financial statements – Income, expenses and undefined elements

There was no objection amongst most respondents to retain the existing definitions of income and expenses largely unchanged, to remove some discussions of various types of income and expenses from the Conceptual Framework and not to define elements for either the statement of changes in equity or the statement of cash flows.


The Board discussed the elements of financial statements together. The majority of comments were related to the definition of liabilities. Some Board members pointed out the need to consider in more detail the concerns presented by bank institutions because they considered that complex financial instruments could bear different application questions, such as the role the concept of economic compulsion might play in identifying liabilities of banks.

There were also concerns about the potential implications of moving forward with the Conceptual Framework project while at the same there were separate projects about financial instruments which require a definition of liabilities. There was no agreement as to how to approach this issue. On the other hand, it was pointed out that bank regulators agreed with the definition of liabilities proposed in the Conceptual Framework. The staff indicated that it was not yet clear why there were different views between banks and their regulators.

There was support for providing more guidance on the meaning of “no practical ability to avoid” in the definition of liabilities.

Few comments were made in relation to the definition of assets. One Board member asked the staff to explore the comments presented in paragraph 27(e) of agenda paper 10D which indicated that the measurement of a collective bundle of rights accounted for as a single asset was not necessarily the sum of the measurements of the individual rights that collectively form the asset. Another comment was that the concept of “rights” was mostly understood as being derived from a legislation or law which made a right enforceable; however, the intention was to include other rights (i.e. access rights) and it was pointed out that there should be a better articulation of the definition.


There was broad support amongst constituents for the proposed approach to recognition, however preparers and users of financial statements were less supportive. Those who disagreed would like to retain the existing criteria, particularly the ‘probability criterion’. They expressed concern about the concept being too abstract and subjective and that low-probability items could be recognised.


Few comments were made on this topic. There was a concern noted that users needed clarification as to in which circumstances they would need to refer to the Conceptual Framework for guidance and the consequential interaction with the existing guidance in IAS 8.


Many respondents generally agreed with the proposed discussion on derecognition. As regards modification of contracts, some respondents supported including the proposed guidance.


Only one Board member indicated that using a control approach in a mixed measurement environment provided opportunities for recognition of gains or losses which might be inappropriate.

Measurement and capital maintenance

Some respondents suggested that further research was necessary before the measurement chapter was issued or to issue the Conceptual Framework with only limited guidance on measurement and perform some research after publication. Most respondents expressed support for the proposed measurement bases with some respondents suggesting that additional measurement bases should be addressed. Most respondents agreed that the selection of the measurement basis should be based on the qualitative characteristics. Many supported that a different measurement basis may be used in the statement of profit or loss if current measurement is used in the balance sheet, however, some suggested that further guidance is necessary.

Most respondents considered the concepts of capital and capital maintenance unsatisfactory.


The discussion was mostly focused on the concept of capital maintenance. It was clarified that the Board did not analyse the issue and the ED Conceptual Framework maintained the existing concept.  . It was agreed that the current wording was erroneous and leaving it with no changes could send the message that it was considered appropriate. There were some comments about deleting the definition of capital maintenance but it was pointed out that it would be necessary to review all the Standards that had a reference to this concept. On the other hand, it was pointed out that the concept of capital maintenance was fundamental to financial reporting and should not be abandoned.

Presentation and disclosure

There was general agreement amongst constituents with the proposals on presentation and disclosure with some concerns and reservations about particular parts of the proposals. Those who disagreed argued that the proposed guidance is insufficient to guide the Board in future standard-setting activities.

Many respondents welcomed the work the IASB performs under the disclosure initiative, although some wished for more clarity as regards the interaction between the Conceptual Framework and the disclosure initiative project.


No significant comment was made on this topic.

Information about financial performance

Interested parties expressed diverse and often opposite views about presenting information about financial performance. Many respondents disagreed with some or all of the aspects of the proposals. In their view, the proposed guidance is not conceptual and insufficient to guide the Board in future standard-setting activities. Some respondents suggested revisiting the Conceptual Framework after the project on primary financial statements is finalised.

Many constituents disagreed with the proposals on the use of OCI, with some disagreeing with the items that should be in OCI and others believing that the proposed guidance is insufficient and lacks a conceptual basis. A slight majority of respondents suggested that all OCI items should be recycled with some supporting a rebuttable presumption and others supporting a requirement for recycling.


There was a substantive discussion on this topic. The area that raised more comments was OCI. Board members observedthat:

  1. if the Board decided to maintain the concept of OCI, then it should be refined;
  2. there was no clear concept of OCI and there was a need to prevent accounting abuse; the best approach would be to provide a robust principle or if not possible use the idea of a rebuttable presumption;
  3. OCI should be discussed at a Standards level (suggestion agreed by the Chairman);
  4. there should be a high hurdle for recognising an item in OCI; and
  5. the Chairman indicated that there should be more analysis about recycling because it distorted financial reporting;

There were different suggestions on segregating items on the P&L, for example segregating components that could be converted to cash readily vs those that could not. Another approach suggested was to segregate P&L in three elements (i) whether the element was persistent or not; (ii) cash or non-cash related and (iii) controllable or non-controllable.   However, some members pointed out that it would be difficult to implement.

Another issue pointed out that the discussion should not focus on areas that mostly relate to questions at a Standard level.

Some Board members considered that the IASB should not finalise this chapter until work on performance reporting has been completed.

Business activities and long-term investment

As regards business activities, almost all of the respondents agreed that the way in which an entity conducts its business had a role to play in financial reporting. However, supporters had different views as regards the extent of the proposed guidance. About one half agreed with the proposed guidance while the other half suggested giving more prominence to the notions of business activities or business model.

As regards long-term investment, many agreed with the proposed approach, i.e., the proposed Conceptual Framework contains sufficient guidance for the Board to make appropriate standard-setting decisions on measurement and presentation of long-term investments and to address appropriately the needs of long-term investors.


No comments were made on this topic.

Effects of the proposed changes to the Conceptual Framework and the exposure draft Updating References to the Conceptual Framework (‘the Updating References ED’)

As regards inconsistencies between existing IFRSs and the proposed Conceptual Framework, some respondents agreed with the Board’s analysis of inconsistencies, many suggested other possible inconsistencies and some encouraged the Board to undertake a more comprehensive effects analysis.

Many agreed that there should not be an automated revision of IFRSs upon publishing a revised Conceptual Framework. Some, however, suggested addressing all identified inconsistencies.

Most respondents agreed with the Updating References ED. Some were concerned about unintended consequences and suggested a comprehensive effects analysis of the proposals.


The only comment made on this topic was that it would be necessary to analyse the implications in IAS 1 and IAS 8 of referring to the revised Conceptual Framework.

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