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IMA comments on the IASB’s Conceptual Framework discussion paper

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16 Jan 2014

The Investment Management Association (IMA) has published their response to the International Accounting Standard Board’s (IASB’s) Discussion Paper: (DP/2013/1) ‘A Review of the Conceptual Framework for Financial Reporting’. The IMA welcomes the IASB revisiting the Conceptual Framework and agrees with a number of proposals within the Discussion Paper (DP). However, there are other areas where they suggest further work is required.

The IASB’s Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements.  The Conceptual Framework identifies the principles for the IASB to use when it develops and revises International Financial Reporting standards (IFRSs).  The DP was published in July 2013 and contained proposals for topical areas where it considered that amendments to the existing Conceptual Framework were necessary. Included in the DP were proposals to revise the definitions of an asset and a liability, to introduce guidance on derecognition, to clarify the objective and purpose of other comprehensive income and to set a framework for presentation and disclosure.   

The following extract from the IMA comment letter highlights the main areas of the DP which they are in support of: 

The mixed attribute model. We support the mixed attribute model and two measurement bases of amortised cost and fair value where the latter, mark to market or mark to model, is applied to financial instruments that are not held for the long-term. A single measurement basis would not necessarily provide relevant information.

A sub-total for profit or loss. We welcome a sub-total for profit and loss being retained. This should give a clear indication to investors of the return management has made on the economic resources entrusted to it in the period.

The current definition of equity. We support the current definition of equity as this is consistent with a proprietary perspective. As set out below, we believe the primary users of financial statements are the equity shareholders. Thus as opposed to the “entity perspective” which looks top-down at the entity, we believe accounting should be based on the “parent entity perspective”. The latter is where the assets and liabilities of an entity, even if that entity is not fully owned, are consolidated in full, and noncontrolling interests are separately identified such that the financial statements reflect what the shareholders of the consolidated parent company own. 

However, there are other areas of the proposals where they consider that further work is required.  In particular: 

  • Ensuring that the concept of accountability or stewardship is given sufficient prominence within the Conceptual Framework chapter on objectives of financial reporting.  The IMA also comment that reliability should also be introduced as a separate qualitative characteristic.
  • Defining profit or loss.  The IMA comment that “it is important that the IASB develops a robust definition of profit or loss” and especially provides clarity as to when to present items within profit or loss and other comprehensive income.
  • Ensuring that the concept of prudence is “specifically written” into the Conceptual Framework.  They comment that “prudence should be a fundamental qualitative characteristic for guiding preparers (and auditors) when recognition involves estimates” and highlight that IFRSs already require prudence.
  • The Conceptual Framework should give equal prominence to the primary financial statements.  The IMA view that the statement of financial position is given too much prominence in the DP.
  • The Conceptual Framework should continue to reflect the concept of going concern as this is “one of the fundamental concepts that underlie financial reporting”.
  • The discussion of measurement bases.  The IMA comment that this discussion is “cursory and incomplete” in the DP. 

Many of these comments are consistent with those of the European Insurance and Occupational Pensions Authority (EIOPA) and also those of the Financial Reporting Council (FRC), The Association of Chartered Certified Accountants (ACCA) and the Institute of Chartered Accountants in England and Wales (ICAEW). 

The full comment letter can be accessed from the IMA website below.   

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