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Conceptual Framework

Date recorded:

The discussion was led jointly by staff from the Accounting Standards Board of Canada, the Institute of Chartered Accountants of New Zealand, and the US Financial Accounting Standards Board.

Process for assessing qualitative characteristics

The Board discussed a revised approach to assessing the qualitative characteristics in the IASB Framework. Much of the discussion was based on a flowchart demonstrating the sequence in which individual qualitative characteristics would be assessed. This 'process' would replace the present hierarchy in the Framework.

The discussion concentrated on the effect of assessing representational faithfulness, particularly in situations in which the related attributes of neutrality and verifiability were not met. There was a sense of unease that an element might not be recognised in the financial statements simply because the high hurdle of (for example) neutrality could not be met. Many Board members were uncomfortable with this apparent conclusion, stating that they would rather have an element included, but measured at an amount that, while verifiable, might not be neutral rather than not having it included in the financial statements at all.

It was noted that the process flowchart, as it was presented in the agenda paper, was appropriate for use by standard-setters only and was inappropriate for preparers. This demonstrated an unresolved issue: the relative status of the conceptual frameworks in the GAAP hierarchies of various standard-setters.

The timeliness of financial information was also addressed. The relevance of timely information depends on what decisions are being made. Consistency and comparability were also addressed, and the staff agreed to be more disciplined about how the concepts should be articulated, in particular that consistency should be both 'over time' and 'across transactions within an entity;' while comparability applied separately but equally 'between entities' and 'across transactions within an entity.'

The Board agreed that the staff should continue the project on the basis of the approach outlined in the process.

The reporting entity

The Board agreed that reporting entity issues should not delay the publication of a discussion document on the Objectives and Qualitative Characteristics sections of the conceptual framework.

A Board member noted that the parent entity vs group is a significant issue for some constituents, especially the CFA Institute (users). This matter is also of concern in the European Union and other areas in which entity-only financial reports are common. Other Board members noted that there is a concern over the border between conceptual issues about the reporting entity and standard-setting activities.

Staff agreed to forward the Australian conceptual framework discussion of reporting entity to all Board members. Otherwise, the approach to this phase of the conceptual framework project was agreed as outlined in the Observer Notes available on the IASB Website.

Prospective information

The Board agreed that any work on prospective information should wait until the conceptual framework project is completed. The staff informed the Board subsequently that that opinion was also that of the FASB.

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