Last week, the Financial Accounting Standards Board and the International Accounting Standards Board each published for public comment a consultative document setting out their preliminary views on the first two chapters of an enhanced conceptual framework. The draft chapters define the objective of financial reporting, and the qualitative characteristics of decision-useful financial information.

The document is the result of a joint project "to build upon, improve and achieve the convergence of their existing conceptual frameworks." The boards' stated belief is that a common conceptual framework will improve the foundation and concepts that underlie global financial reporting, and serve as a more effective guide in developing global financial reporting standards.

The FASB and the IASB invite comments to be submitted thru November 3, 2006, on the document. An exposure draft of these chapters is expected to be published in 2007.

The preliminary views document, " Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information," is available at

They provide an extensive discussion on basis concepts, and are seen by FASB and IASB as providing the foundation that is needed to move towards "developing principles-based and converged standards."

What I found most interesting in the document was a discussion at the end of Chapter Two to the posed question of "How Should Standard Setters Evaluate the Benefits and Costs of Financial Reporting Requirements?" The boards concluded:

"Regardless of the difficulty, standard setters must take into account both the benefits and the costs of proposed financial reporting requirements. The boards concluded that the framework should commit standard setters to seek information from constituents about their expectations of the nature and quantity of the benefits and costs of proposed standards and to consider that information in their deliberations. In other words, the Boards concluded that the improved framework should go further in the area of assessing benefits and costs than the existing frameworks do. But the framework stops short of committing standard setters to demonstrate that the benefits of a proposed requirement would justify the related costs. To suggest in the framework that standard setters should attempt to conduct rigorous, quantitative cost-benefit analyses would raise expectations beyond what is feasible and might make it more difficult for standard setters to improve financial reporting."

Increased convergence is a noble objective. But implementing it will be difficult. it is off to a good start with this first effort that states commonality with regard to the underlying concepts. By favoring incorporating a more sophisticated cost-benefit analysis in the standard setters' decision-making process, there is an increased chance of buy-in from all interested parties. Globalization requires globalization of accounting standards. That process has begun on the right footing.

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