Our views on Conceptual Framework discussion paper

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21 Nov 2006

We have submitted to the IASB Our Comments on the Discussion Paper (DP): Conceptual Framework–Objective and Qualitative Characteristics.

Although we agree with many of the provisions in the proposed framework, we have concerns about some of them, including the following:
  • Insufficient emphasis is given to stewardship as an objective of financial reporting. Our letter states:

    "Management, in addition to having the responsibility for allocation of the assets entrusted to it for the benefit of shareholders, also has an obligation to provide its shareholders with an account of what it has done with those assets. This account has to be a faithful and complete historic description of the entity's assets and liabilities at the beginning and end of the accounting period, coupled with management's explanation of how those balances changed during the period. Recognizing this broader meaning of 'stewardship' as one of the primary objectives of financial reporting both supports all of the qualitative characteristics of financial reporting information proposed in the DP, and helps to align management's behaviour with the objectives of all of the entity's stakeholders. Such a stewardship objective will emphasize the role of financial reporting as a dialogue between management and the owners of the business."

  • While present and potential investors and creditors view cash flow information as essential for their decision-making, they also value other information not specifically tied to cash flows. For example, many non-cash transactions such as asset write-downs and share-based payments lend insight into management's stewardship and the impact of current economic factors on the entity's assets and liabilities. Other information such as sensitivity or trend analyses might prove equally useful;
  • Different information needs of different categories of users of financial reports should be set out in a hierarchy;
  • The DP focuses on financial reporting, rather than financial statements, but does not define financial reporting;
  • Reliability should be regarded as an essential attribute of financial information and as an additional and separate characteristic that should not be subsumed in the attributes of faithful representation and verifiability
  • 'Substance over form' should be identified as a component of representational faithfulness,
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