ESMA believes Conceptual Framework to be incomplete without guidance on liability and equity

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18 Nov 2015

The European Securities and Markets Authority (ESMA) has commented on the IASB's exposure drafts ED/2015/3 'Conceptual Framework for Financial Reporting' and ED/2015/4 'Updating References to the Conceptual Framework'.

In its comment letter, ESMA supports the IASB's initiative and agrees with most proposals in the EDs. However, ESMA "regrets that the ED does not provide guidance on some essential issues in financial reporting which leaves the Conceptual Framework incomplete". The two point ESMA particularly stresses are:

  • According to ESMA, the ED does not include sufficient guidance on distinguishing between liability and equity. ESMA agrees with the view that the definition of a liability should be used to distinguish between liability and equity, but is concerned that the IASB has not sufficiently considered the issue yet. ESMA is also worried that dealing with this matter in a separate project might lead to subsequent changes to the definition of a liability.
  • ESMA is concerned that the ED does not attempt to define performance. ESMA concludes that as a result the Conceptual Framework will include neither a clear basis for distinguishing between items that should be recognised in profit or loss and items that should be recognised in other comprehensive income (DCI), nor a principle establishing whether and when recycling is appropriate.

Please click to access the full comment letter on the ESMA website.

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