Conceptual Framework Phase A — Objective and Qualitative Characteristics and Phase G — Application to Not-For-Profit Entities

Date recorded:

Redeliberations: Qualitative characteristics of decision-useful financial reporting information

Following the analysis of comments received related to the Discussion Paper (DP) Preliminary Views on an Improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information, the staff presented four issues requiring decisions by the Board.

Faithful representation

The following issues were raised by respondents:

  • Some objected to the Board's decision to replace reliability with faithful representation
  • It was noted that substance over form should be included as a component of faithful representation
  • Some respondents suggested that verifiability should not be a component of faithful representation

The Board unanimously made the following decisions:

  • Retain faithful representation as a primary qualitative characteristic The Board noted that the characteristics of reliability outlined in the current Framework are fully covered by faithful representation and that this should be clarified. Additionally, some Board members assumed that some constituents might see the term faithful representation as a back door to full fair value measurement and therefore object to it. It was decided to make explicit that this is not the intention of the Board.
  • Clarify the description of faithful representation to make clear that faithful representation requires depiction of the economic substance of the underlying phenomenon regardless of its form and that neutrality and completeness are necessary but not sufficient to achieve faithful representation. Board members were of the opinion that the paragraphs BC2.17 and BC2.18 in the Basis for Conclusion already appropriately addressed this issue and that reference should be made to this guidance.
  • Separate verifiability from faithful representation and describe it as a primary enhancing qualitative characteristic.


Some respondents noted that there is incongruence between the primary user group identified in the DP and the discussion of understandability as a qualitative characteristic.

The Board acknowledged that they should be more explicit in linking this qualitative characteristic to the objective outlined in chapter 1 of the DP, particularly, the primary user group identified in the objective. In addition, the material in the DP should be expanded to address the role of advisors in understanding financial reporting.

Constraints on financial reporting

Some constituents thought it illogical to consider timeliness to be a component of relevance while materiality is considered a pervasive constraint.

The staff recommended that timeliness be separated from relevance and identified instead as a pervasive constraint since it is much more closely related to materiality than it is to the components of relevance with which it has been associated in the DP.

The Board had a lengthy discussion and mixed views were expressed whether timeliness should be a constraint or a separate 'enhancing qualitative characteristic'.

Tentatively a majority of 10 Board members was in favour of having a separate enhancing qualitative characteristic. However, the issue was pushed back to the staff for further investigation.


Many constituents argued that prudence, or conservatism, should be included as a qualitative characteristic or as component of the qualitative characteristic of faithful representation.

The Board affirmed its decision that conservatism is incompatible with neutrality and therefore should not be included in the qualitative characteristics.

For clarification one Board member pointed out that the exclusion of prudence as a qualitative characteristic does not mean that uncertainty is not considered. Rather uncertainty should be addressed on a balanced basis in the measurement process.

Redeliberations on issues related to the conceptual framework project in general: Applicability of the framework to not-for-profit and public sector entities

Some respondents criticised the Boards' plan to address not-for-profit and public sector entities toward the end of the conceptual framework project as there would be the risk that adequate consideration of not-for-profit and public sector issues would not be provided; or that amendments to the Framework established for profit-seeking entities necessary to fully reflect the needs of the not-for-profit and public sectors might be more difficult to accommodate.

The Board affirmed its decision to defer consideration of not-for-profit and public sector entity issues and continue to focus currently available resources on the first four phases of the project. No decisions were made regarding the starting point of deliberations for not-for-profit and public sector entities.

One Board member raised the concern that particularly in the governmental area there may be numerous issues that have never been contemplated before by the Board, for example, the accounting for potential stand-ready obligations of NATO member countries to defend certain other countries. Therefore, the Board should not promise to cover all issues related to public sector entities within this project.

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