IASB proposes changes to conceptual framework

By Ken Tysiac

The International Accounting Standards Board (IASB) on Thursday proposed changes to its conceptual framework, which provides a foundational underpinning for financial reporting under IFRS.

In an exposure draft, Conceptual Framework for Financial Reporting, the IASB proposes changes that would include:

  • A new chapter on measurement, describing appropriate measurement bases (historical cost and current value, including fair value) and the factors to consider when selecting a measurement basis.
  • Confirming that the statement of profit or loss is the primary source of information about a company’s performance, and adding guidance on when income and expenses could be reported outside the statement of profit or loss in other comprehensive income.
  • Refining the definitions of the basic building blocks of financial statements, including assets, liabilities, equity, income, and expenses.
  • Placing more emphasis on the importance of providing information needed for investors to assess management’s stewardship.
  • Reintroducing an explicit reference to “prudence” and explaining clearly what it means.

The IASB plans to issue a final conceptual framework next year. The framework was most recently revised in 2010, and respondents to the IASB’s agenda consultation in 2011 called for the IASB to restart and prioritize revision of the parts that were not revised in 2010.

The AICPA Financial Reporting Executive Committee was among the 2011 respondents asking the IASB to continue focusing on completing a conceptual framework.

In addition, the IASB has published for public comment a separate exposure draft, Updating References to the Conceptual Framework, proposing that references to the conceptual framework be updated in existing standards.

Comments on both exposure drafts are sought by Oct. 26 and can be made at the IFRS website.

“A solid conceptual framework is essential because it shapes the decisions the IASB takes when developing standards,” IASB Chairman Hans Hoogervorst said in a news release. “Two particularly important areas of the proposals published today are the clarification of the key role of profit or loss as an indicator of a company’s financial performance and the chapter that describes the information provided by historical cost and current value measurements.”

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.

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