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 comments of EFRAG are consistent with those expressed in the draft comment letter in September 2013.  The key comments of EFRAG are: 

• EFRAG disagrees with the decision not to reconsider Chapters 1 and 3 of the existing Conceptual Framework. EFRAG believes that especially the approaches regarding stewardship, reliability and prudence should be opened for discussion again they “do not support how the existing chapters deal with stewardship, reliability and prudence”.
• EFRAG appreciates the IASB’s preliminary view that financial statements can be made more relevant if the IASB considers how an entity conducts its business activities.  EFRAG considers it important that “no standard ends up preventing entities from reflecting their business models” and also agrees with the approach to measurement in the DP.
• EFRAG believes that the Conceptual Framework should “provide a definition/description of what profit or loss should depict” and this would provide clarity of the distinction between profit or loss and other comprehensive income (OCI), helping to clarify when and how recycling should take place.
• EFRAG “generally” agrees with the proposed new definitions of assets and liabilities in the DP but recommends that the IASB “tests possible interpretations” to ensure that they are interpreted in a consistent manner.  However they comment that “constructive obligations are defined too narrowly in the proposals” and favours an approach to liabilities “where an obligation is present when it has arisen from past events and is practically unconditional”.  EFRAG also comments that more assets may be recognised under the new definition and proposes that the IASB considers probability thresholds for recognition on a standards level.  They do not feel that probability thresholds should be included within the Conceptual Framework but that the Conceptual Framework “should provide guidance on how uncertainty affects relevance and reliability”.
• EFRAG also welcomes that the DP addresses the distinction between liabilities and equity but EFRAG does not support “either of the approaches as described in the DP”. 

The comments of EFRAG echo those of the Financial Reporting Council (FRC), the Association of Chartered Certified Accountants (ACCA)and the ICAEW who have also called for the re-introduction of the concepts of stewardship, reliability and prudence within the Conceptual Framework. 

EFRAG is giving the conceptual framework project a lot of attention and has found several ways of contributing to the discussion and of soliciting constituents’ views. A publication series has been developed that discusses issues that arise in the course of the IASB's project - so far seven of the Conceptual Framework bulletins have been published, among them bulletins on accountability, reliability and prudence. EFRAG has also initiated a series of outreach events that have been held across Europe to discuss the proposals in the DP. 

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

Click for:

• Press release (link to EFRAG website).
• EFRAG full comment letter (link to EFRAG website).
• Our previous UK Accounting Plus story on the IASB Discussion Paper: DP/2013/1: ‘A Review of the Conceptual Framework for Financial Reporting’.
• Our UK Accounting Plus project page in the Conceptual Framework.