Concerns about the conceptual framework proposals

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17 Jul 2006

The United Kingdom Accounting Standards Board (ASB) has recently published two press releases relating to the IASB's new Discussion Paper on the objectives and qualitative characteristics components of the Conceptual Framework of Financial Reporting One of the ASB's releases expresses concerns about the proposals in the Discussion Paper in general.

Those concerns relate to:
  • the proposal that the objective of financial reporting should focus only on decision-usefulness, with stewardship being subsumed within this rather than a specific part of the objective, or a separate objective.
  • the focus on financial reporting, not just the financial statements – can the same framework be more widely applied?
  • the widening of the definition of the primary users of financial reports to cover 'present and potential investors and creditors, and their advisors' – does this mean that the focus will move even further away from meeting the needs of the existing shareholders?
  • the proposal to drop 'reliability' as a qualitative characteristic and to replace it with 'faithful representation'; and
  • the introduction of verifiability as a component of faithful representation. Click to download: The ASB's second release relates to work that the ASB is doing jointly with the accounting standard setters in Australia, Canada, and New Zealand on the applicability of the concepts in the Discussion Paper to not-for-profit entities in the private and public sector. The chairs and senior staff of the four boards have jointly published a background paper that highlights three issues relating to the objective of financial reporting:
    • an insufficient emphasis on accountability/stewardship;
    • a need to broaden the identified users and establish an alternative primary user group; and
    • the inappropriateness of the pervasive cash flow focus. Click to download:

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