Conceptual Framework

Date recorded:

At the previous joint meeting, the Boards discussed a staff proposal to undertake a joint project to develop a common conceptual framework for both Boards. The objective of this project is to develop a single framework that both converges and improves the existing frameworks of the two Boards.

There was general support for a framework that would apply initially to the private/business sector only, with its applicability to other sectors being considered later. Some Board members expressed the view that ultimately, they would prefer to have a framework that was applicable to every sector, despite that being a challenging project.

The following additional points were made during the discussion:

  • Qualitative characteristics (such as reliability and relevance) should be dealt with early in the project together with recognition and measurement issues as these are intricately related.
  • The issue of whether derecognition occurs when the recognition criteria cease to be met after initial recognition should be addressed.
  • There is lack of a comprehensive disclosure framework. As a result, incremental disclosure requirements in individual standards are sometimes viewed as making financial statements difficult to comprehend. A disclosure framework should therefore be considered.

Staff gave an indication that a timeline of about five years was considered appropriate to complete this project. Some Board members expressed concern over this timeframe. Staff agreed to draw up a detailed project plan as well as consider the staffing requirements for this project.

There was general support for the staff recommendation that the conceptual framework should be a single document with the following structure:

  • An executive summary that sets out all of the key concepts, similar to the 'highlights' section at the start of each FASB concepts statement.
  • Following the executive summary, the main body of the conceptual framework would contain a section for each part of the framework, such as objectives, qualitative characteristics, elements, etc. Each section would contain all of the relevant key concepts, repeated from the executive summary, and accompanied by further explanatory material.
  • A basis for conclusions, to explain why the Boards reached decisions on particular issues, including why they rejected any alternative approaches.

The point was made that staff should consider external assistance with the drafting and layout of the document in order to make it easy to read and generally more presentable.

The Boards agreed on a multi-phase project that would initially deal with convergence issues and improvements while focussing on the 'cross cutting' issues that have been problematic in the past. After that, the Boards will then deal with the issue of filling in the gaps in the existing frameworks.

The Boards supported a staff proposal that an initial document should be sent out to constituents for comment. That document would set out the issues facing the Boards related to the conceptual framework, without pre-empting Board deliberations on how the project will unfold. This suggestion was supported as it was seen by some members as a way of communicating with constituents as well as managing expectations.

The Boards also agreed to consider issuing a similar document drafted in non-technical language as was done by the ASB in the UK. A journalist may be approached in this regard.

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