This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

Conceptual Framework

Date recorded:

Conceptual Framework - Agenda paper 10

The IASB continued its discussion of the comments received on the Conceptual Framework exposure draft (the ‘CF ED’). The topics for this meeting were as follows:

  • Factors specific to initial measurement (APs 10B);
  • More than one measurement basis (AP 10D); and
  • Whether to confirm the proposals in the Updating References to the Conceptual Framework ED (AP 10E-10F).

In addition, the tentative decisions made to date were summarised in AP 10A. AP 10C contained the suggested revised draft to Chapter 6 — Measurement as regards initial measurement.

The Staff intends to discuss the following topics in the February 2017 Board meeting: (a) inconsistencies between the revised Conceptual Framework and other Standards; (b) effects analysis; and (c) due process.

Conceptual Framework - Factors specific to initial measurement - Agenda paper 10B

Feedback from respondents and Staff analysis

Exchanges of items of similar values and exchanges of items of different values

Only a few respondents commented on this topic. Generally, the respondents believed that the section is underdeveloped and incomplete, and that it fails to bring out an important assumption on which the measurement principles are premised: that transactions between entities are fair, negotiated, arm’s length, exchanges. Without this overarching assumption, the requirements might be seen as establishing an inappropriate principle for measuring related-party transactions at current value.

The Staff agreed with the respondents’ concerns, and noted that arm’s length transactions might not necessarily result in trades at ‘similar’ values.

Transactions with equity holders

Disagreements were few, and mainly related to the inappropriateness of measuring a contributed asset from equity holders at current value when the contribution is from a related party, e.g. intra-group transactions and business combinations under common control (BCUCC), as current practice is to record such assets at their historical carrying amount. Some respondents also believed that it would be costly and judgemental to obtain current value for the contributed asset and challenged whether grossing up underpayments is conceptually sound.

The Staff agreed with the respondents’ concerns. The Staff explored the alternative of recording the contributed asset at historical carrying amount and the issued equity at current value with the difference between the two recognised as an expense. They noted that although this appears to be consistent with IFRS 2’s requirement to expense the amount attributable to ‘unidentified assets or services received’, they decided against including this in the CF as they believe it to be beyond the scope of the proposals and would pre-empt the Board’s considerations on the BCUCC project.

Internally constructed assets

With regard to the desirability of changing the measurement basis of an internally constructed asset subsequent to initial recognition, the few respondents who disagreed with the proposals believed that the paragraphs are redundant, and that the information provided by measuring an internally constructed asset at fair value on completion date is not useful for assessing cost-effectiveness (as suggested by the proposals), as an entity does not make money by transacting with itself.

The Staff agreed with the respondents, and acknowledged that the proposed discussion is hardly comprehensive regarding the pros and cons of changing the measurement basis subsequent to initial recognition.

Staff recommendation

The Staff recommended that the revised CF:

In relation to exchanges of items of similar values and exchanges of items of different values

  • (a) retain the main principles about initial measurement as set out in the ED; (b) distinguish transactions that are on arm’s length terms from other transactions, rather than referring to ‘exchanges of items of similar values’ and ‘exchanges of items of different values’;

In relation to transactions with equity holders

  • (c) retain the principle that a transaction with equity holders is measured at the current value of the asset received with a corresponding contribution from owners;
  • (d) expand the principle in (c) above to address liabilities incurred to make distributions to equity holders;
  • (e) clarify that the principle in (c) and (d) above applies only to transactions on arm’s length terms, and that the revised CF not address transactions on other terms; and

In relation to internally constructed assets

  • (f) remove the discussion of internally constructed assets as set out in the ED.


Only issue (f) was voted on and the Board unanimously agreed with the Staff’s recommendation not to include a discussion.

For the other issues, the Board made the following suggestions:

Exchanges of items of similar values and exchanges of items of different values

  • Instead of distinguishing transactions between whether they were carried out ‘at arm’s length’ or not, as recommended by the Staff, various Board members suggested the distinction be made on whether or not the transactions were carried out ‘at market terms’. This was because ‘at market terms’ was already used in IAS 24 and would likely cause less confusion and fewer interpretation issues. Some Board members also noted that this change would help with translation as there was no equivalent term for ‘arm’s length’ in their respective home languages.
  • One Board member also suggested that an explicit assumption be made for the measurement chapter that it covered transactions that were carried out ‘at market terms’, and that the Staff consider the extent to which the CF should discuss transactions at non-market terms especially because those other transactions had not been deliberated by the Board.

Transactions with equity holders

  • One Board member asked the Staff to think through how the proposal to record a liability to make distributions to equity holders at current value would change existing practice, taking IFRIC 17 into account (rather than including this change simply for the sake of achieving symmetry with the asset side).

Conceptual Framework - More than one relevant measurement basis - Agenda paper 10D

Feedback from respondents

There was mixed feedback from the respondents. Those who disagreed with using a different basis for measuring assets/liabilities and their related income/expenses argued that this would increase the cost and complexity and decrease the understandability of financial statements. They also believed that the proposals contradict the definitions of the elements of financial statements (as income and expenses are defined as increases and decreases in assets and liabilities, it logically follows that a single measurement basis should be used for assets/liabilities and their related income/expenses). Furthermore, they were unclear as to whether, and how, OCI could be used to reflect the effects of these different measurement bases.

These concerns were shared by those respondents who agreed with the proposals, who also sought further guidance on when using more than one measurement basis would be appropriate.

Staff analysis

The Staff agreed that using more than one measurement basis would result in increased cost and complexity; however, they noted that the Board would take costs/benefits into account when requiring entities to use more than one measurement basis. The Staff also reiterated that instead of hindering understandability, using more than one measurement basis would enhance users’ understanding of complex economic transactions (e.g. providing information on the amortised cost basis and fair value basis for financial assets held for collecting cash flows and for sale).

The Staff provided further lukewarm analyses to address the other concerns.

Staff recommendation

The Staff recommended that the revised CF:

  • (a) retain the statement that more than one measurement basis might sometimes be selected to provide information about an asset, liability, income or expense;
  • (b) require that both the relevance and faithful representation of information about an asset, liability, income or expenses be considered when selecting more than one measurement basis. These two factors are consistent with those to be considered when making classification decisions between P/L and OCI; and
  • (c) clarify that measuring an asset/liability at current value and the related income/expense on a different basis is an example of classifying income and expenses in the statement of profit or loss and other comprehensive income, as opposed to being a concept on its own (in other words, the different measurement basis is a consequence of having to present income and expenses separately between P/L and OCI).


The Board approved the Staff’s recommendations after some sparse and unengaging discussions on whether relevance or faithful representation should dominate in the decision of whether more than one measurement basis should be used.

Conceptual Framework - Updating References Exposure Draft — proposed amendments and transition and effective date — Agenda papers 10E and 10F


The purpose of this session was to discuss whether the Board should confirm the proposals in the ED Updating References to the Conceptual Framework (the ‘Updating References ED’) to update all references to the existing conceptual framework to the revised CF once published.

Feedback from respondents and Staff analysis

Most respondents agreed with the proposals, with one major exception being the reference to the framework in IFRS 3.11 in relation to recognising identifiable assets and liabilities on the acquisition date of a business combination only if they meet the definition of assets and liabilities in the framework. Since the revised definition of liabilities in the revised CF might lead to some levies being recognised at a different time when compared to the existing IFRS requirements, some respondents were concerned that this might lead to a day-2 gain or loss subsequent to acquisition. The Staff agreed that this would lead to unintended consequences (as the Updating References ED is not meant to introduce any technical changes to any of the Standards), and suggested retaining the reference to the existing framework with a narrow-scope amendment to IFRS 3 to address the potential day-2 gain or loss concern.

Staff recommendation

The Staff recommended that the Board confirm the proposals in the Updating References ED, except as noted above in relation to IFRS 3.11, together with a few other minor deletions and amendments.

The Staff further recommended that the Board confirm retrospective application of the proposed amendments with a transition period of around 18 months.


The Board approved the Staff’s recommendations, including the recommendation to start a project to make a narrow-scope amendment to IFRS 3.

With regard to AP 10E on the actual updates to references, the discussions centred on editorial/drafting issues, some of which the Staff agreed to address in the Basis for Conclusions of the CF and others which the Chairman and Vice-Chair believed could be considered in the future subject to costs/benefits assessment.

With regard to AP 10F on transition and effective date, there was significant debate on whether the proposed amendments should be applied retrospectively or prospectively on the usual grounds of costs and burden to change accounting policies retrospectively versus a lack of comparability for prospective application. When some Board members suggested staying silent on this and merely referring to IAS 8 which, by default, required retrospective application unless it would be impracticable to do so, the Staff pointed out that this outcome would be identical to that as proposed by them. In the end, the Board agreed on retrospective application but lowering the hurdle for exemption from ‘impracticable’ to an assessment of whether the retrospective application would require ‘undue cost and effort’.

The Staff will bring back a paper for discussion in a future meeting on how the proposed changes would affect rate-regulated entities.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.