The International Accounting Standards Board has published for public comment a discussion paper exploring possible changes to the IASB’s Conceptual Framework for Financial Reporting.

The discussion paper is the first step towards issuing a revised Conceptual Framework, the IASB noted. The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements.  It identifies principles for the IASB to use when it develops and revises International Financial Reporting Standards 

The IASB acknowledged that the existing Conceptual Framework has enabled it to develop high-quality standards that have improved financial reporting. However, the IASB pointed out that the existing framework does not cover some important areas and some guidance needs updating.

In 2011, the IASB carried out an extensive public consultation to assist in identifying priorities for its agenda. Most respondents to that consultation identified work on the Conceptual Framework as a high priority. The discussion paper, which the IASB released last Thursday, is designed to obtain initial views and comments on important issues that the IASB will consider as it develops an Exposure Draft of a revised Conceptual Framework.

The issues include definitions of assets and liabilities; recognition and derecognition; the distinction between equity and liabilities; measurement; presentation and disclosure; and other comprehensive income, or OCI.

“The Conceptual Framework underpins the work of the IASB and affects all IFRSs that we develop,” said IASB chairman Hans Hoogervorst in a statement. “This discussion paper gives people the opportunity to help us to shape the future of financial reporting by discussing the concepts that drive our work.”

The IASB and the U.S. Financial Accounting Standards Board had originally been working together on developing a common conceptual framework, but have since suspended their work, the discussion paper noted. In 2004, the IASB and FASB initiated a joint project to revise their conceptual frameworks. In 2010, the IASB and the FASB issued two chapters of a revised conceptual framework, on the objective of general purpose financial reporting and qualitative characteristics of useful financial information. These chapters became effective as soon as they were published and now form part of the IASB’s existing Conceptual Framework. In addition to finalizing these chapters, the IASB and FASB also published a discussion paper and an exposure draft on the concept of a reporting entity, discussed the definitions of the elements of financial statements, and discussed and held public roundtable meetings about measurement concepts. But then in 2010, the IASB and FASB suspended work on the joint conceptual framework in order to concentrate on other projects on their agendas.

Former FASB chairman Robert Herz recently told Accounting Today that one of the regrets he still has from his term is that the two boards did not make more progress on the framework (see Former FASB Chairman Robert Herz on Challenges in Accounting Standard-Setting). "We had a joint project to improve the conceptual framework. We made some progress on that, but not as much as I would have liked. I think that’s just a really important thing that needs to be done. There are a lot of major fundamental issues that keep on coming up in standard setting and financial reporting that just need some better wrestling to ground in terms of the basic concepts."

In 2012, the IASB carried out a public consultation on its agenda. Many respondents to that consultation identified the Conceptual Framework as a priority project for the IASB, so the IASB restarted its Conceptual Framework project. The project is no longer being conducted jointly with FASB, however.

The IASB’s discussion paper is available for comment until Jan. 14, 2014.

The Institute of Chartered Accountants in England and Wales offered a quick reaction soon after the discussion paper was issued. “The issues discussed are of fundamental importance to the future of international financial reporting,” Dr. Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty, said in a statement. “It is disappointing to see that while the paper discusses the 2010 exclusion of prudence from the conceptual framework, it does not suggest reinstating it. Whether or not this should happen will, I’m sure, prove a key part of the forthcoming debate.”

In addition to seeking input in the form of comment letters, the IASB plans to undertake an outreach program to obtain feedback on the areas covered in the discussion paper. 

A high level “snapshot” summary of the discussion paper is available here.  On July 26, the IASB plans to host two live webcasts taking place at 10:00 am and 3:00 pm London time (or 5:00 am and 10:00 am Eastern time). More information, including details on how to register, can be found here.

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