The paper offers an overview of the history of frameworks from standard-setting before the advent of frameworks to the present state of play in the IASB's project on the conceptual framework. The authors explain that the introduction of frameworks has a disciplining effect on standard-setters leading to improved consistency by providing them with a common frame of reference for their decision-making, but also to the fact that standard-setters can now be held accountable for their decisions. They have also given practitioners deeper understanding of standard-setters' decision-making and a fallback solution for issues not dealt with in standards.

However, to fulfil such an important role a framework must be complete and up-to-date, which, as the reactivation of the IASB's project has shown, is not the case with the current IASB Framework. In their paper, the authors list the areas where the framework is incomplete or needs revisions. They especially discuss the following areas which are mostly commonly agreed by constituents (and the IASB):

• Reporting entity,
• Definition of elements,
• Measurement of elements,
• Scope of financial reporting, and
• Presentation and disclosure.

Yet while identifying specific areas and even specific desirable qualities, the most urgent call of the paper is for the new framework to be aspirational and not just a confirmation of the status quo of standard-setting and of the current application of the standards.

Conceptual frameworks have traditionally been viewed by standard setters as aspirational documents, setting the direction for reform of financial reporting while acknowledging that at any point in time the ‘conceptually correct’ approach may not be achievable at a standards level. If financial reporting is to continue to evolve and meet the needs of the users of financial statements, it is important that this continues to be the case. There will always be a temptation when standard setters revisit the conceptual framework to see it as an opportunity to justify previous decisions at a standard setting level that, at the time, were driven more by compromise and pragmatic solutions than underlying concepts. Such re-engineering would undermine the integrity of the conceptual framework both as a vehicle for facilitating the development of new ideas by the standard setter at a standards level and as vehicle for holding the standard setter accountable for its decisions.

We are grateful to Mr McGregor and his co-author Ms Jan McCahey for allowing us to host this paper on IAS Plus. Please click for access to the full paper.

Mr McGregor is also the author of the recent AASB Occasional Paper No. 1 Liabilities – the neglected element: a conceptual analysis of the financial reporting of liabilities, which will form the basis of discussion of liabilities in the context of the conceptual framework at the upcoming ASAF meeting.

The topics discussed at the meeting included:

• Conceptual framework. The CMAC discussed aspects of the conceptual framework discussion paper concerning profit or loss/other comprehensive income, liabilities/equity and prudence/stewardship/reliability.
• Disclosure initiative. The CMAC discussed the need for disclosures on ‘net debt’. They decided that although it is an important issue, it should not be considered as part of the amendments to IAS 1.
• Leases. The CMAC agreed that assets and liabilities should be recognised for all leases that last longer than 12 months on a lessee’s balance sheet to improve financial reporting. Also, most of the members supported the proposed changes to lessor accounting model.
• IFRS 3: Post-implementation review. The CMAC discussed the investors’ prospective to the business combinations guidance. Main discussion points centered on disclosures, goodwill and intangibles, and other concerns.
• Appointment of new members. The CMAC extended Jane Fuller term for one more year and appointed seven new members.

Click for more information (link to IASB website).

The IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) in October 2012 in order to provide an exemption from consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities which meet the definition of an 'investment entity'. The European Union published a Commission Regulation endorsing the amendments on 21 November 2013.

Please click for the EFRAG Endorsement Status Report as of 21 November 2013.

The European Union has published the Commission Regulation (EC) No 1174/2013 of 20 November 2013 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council in the Official Journal on 21 November 2013. This regulation adopts the amendments made by the IASB in October 2012 providing an exemption from consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities which meet the definition of an 'investment entity'.

The amendments have been given an effective date of 1 January 2014 but can be applied earlier (this is the same effective date the IASB has given the amendments).

In responding to the Committee’s tentative agenda decision, we recommend that an amendment be made to IAS 29 to clarify the use of inflation accounting.

Click for access to the full comment letter.

Our key comments include:

• We believe it would be helpful to users if the guidance clearly highlighted those requirements that apply only to quoted companies and clearly distinguishes between those items which are requirements of the law and those which are best practice recommendations.

• In our opinion the guidance in respect of environmental matters, employees and social, community and human rights issues is rather brief compared to many of the content elements. Whilst for some companies meeting these requirements is just a statutory compliance exercise, for other reporters the issues will be fundamental to the business and the risks inherent in it. It would therefore be helpful if further guidance could be provided, particularly in respect of the newly introduced requirements such as human rights disclosures and employee gender balance.

• There is no mention of the option to send the ‘strategic report and supplementary information’ to shareholders as a standalone document. Specific guidance should be included for those companies intending to take advantage of this.

• In recognition of the International Integrated Reporting Council’s initiative on ‘integrated reporting’ and the fact that many UK companies are already preparing annual reports which comply in many respects with the ideas within the IIRCs [draft] International Integrated Reporting Framework, we believe it would be helpful if the language used to describe non-financial information was consistent with the IIRC [draft] framework.

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

CRD IV (consisting of the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)) is the EU package of rules and regulations which implements Basel III, the international regulatory framework for banks. The package is binding on all EU member states. It aims to address the problems that caused the financial crisis by increasing the level and quality of capital held by banks, enhancing risk coverage, expanding disclosure requirements and reducing procyclicality. CRD IV provides a basis for EU liquidity standards and introduces leverage disclosure requirements.  CRD IV was agreed by the European Council on 20 June 2013 and the legislation was published in the Official Journal on 27 June 2013.   

HM Treasury has considered the responses received to their initial consultation in September 2013 and used these to inform the draft Regulations and accompanying guidance.  The Regulations implement Article 89 of the Capital Requirements Directive 4.

The key aspects of the draft Regulations are:

• All institutions (as defined in Article 4(1)(3) of the CRR) should publicly disclose annually, on a consolidated basis, by country where they have an establishment:

a)      their name, nature of activities and geographic location;

b)      number of employees;

c)      their turnover;

d)     pre-tax profit or loss;

e)      corporation tax paid; and

f)       any public subsidies received.

• Institutions will be required to publicly disclose the information from 1 January 2015 and from 1 July 2014 they must disclose (a)-(c) above. 
• Certain “global systematically important institutions” will be required to disclose additional information such as their pre-tax profit or loss, their taxes paid and any public subsidies received by 1 July 2014.  Should this disclosure not be deemed to be prejudicial all credit institutions and investment firms will have to disclose this information from 1 January 2015. 
• This information is to be disclosed “on a consolidated basis in accordance with international accounting standards for each country in which the institution has a subsidiary, branch or both”.  The draft guidance states that “in practice this will require institutions to use an accounting approach to consolidation either in accordance with International Financial Reporting Standards (IFRSs) or Generally Accepted Accounting Principles (GAAP)".  The draft guidance explains that aggregation of disclosure may be allowed where more than one institution within the group is within the scope of the Regulations.  The draft guidance also elaborates on how institutions which are part of a wider group may meet their disclosure obligations.
• The disclosures are required to be audited and the draft guidance explains that this could be part of the statutory audit or part of an additional external assurance engagement.

The draft regulations will be enforced by the Prudential Regulation Authority (PRA) for PRA-regulated institutions and by the Financial Conduct Authority (FCA) for all other institutions.  They will come into force on 1 January 2014.

Click for:

• Press release (link to HM Treasury website).
• ‘Capital Requirements (Country by Country Reporting) Regulations 2013: draft guidance’ (link to HM Treasury website).
• ‘Capital Requirements Directive 4: Summary of responses on country-by-country reporting (link to HM Treasury website).
• ‘Capital Requirements (Country by Country Reporting) Regulations 2013: draft legislation’ (link to HM Treasury website).
• Capital Requirements Regulation (link to European Union website)
• Capital Requirements Directive (link to European Union website).
• Our previous UK Accounting Plus story on HM Treasury consultation.