Heads Up — IASB proposes revisions to its conceptual framework
In May 2015, the IASB released an exposure draft (ED) that proposes revisions to its conceptual framework for financial reporting. The purpose of the proposal is to clarify, update, and fill in gaps in the IASB’s existing framework, which addresses a range of fundamental accounting topics, such as determining what is an asset or liability. Comments on the ED are due by October 26, 2015. The IASB expects to complete the revisions in 2016.
Editor’s Note: The IASB uses the framework as a guide in developing IFRSs based on consistent concepts. Further, preparers use the framework when creating accounting policies related to topics that are not specifically addressed in IFRSs or when selecting or changing accounting policies related to topics for which IFRSs give a choice of accounting policies. An entity that has developed or selected an accounting policy on the basis of the current framework should identify and understand any revision to the framework that might affect the appropriateness of such a policy. An entity might be required to change its policy if it is inconsistent with the revised framework. The IASB proposes a transition period of approximately 18 months for such changes.
When the framework conflicts with a specific IFRS, the requirements of the IFRS apply. The proposed revised framework is inconsistent with existing IFRSs in two key respects: (1) its definitions of liabilities and equity are inconsistent with the approach to classifying financial instruments as liabilities or equity under IAS 32 (e.g., share-settled debt and certain puttable instruments) and (2) its guidance on liabilities is inconsistent with the accounting for levies under IFRIC 21.
The IASB framework was originally published in 1989. In 2004, the IASB and FASB began a joint project to develop a common framework. That project resulted in the boards’ 2010 issuance of two chapters of a shared framework that discuss the objective of general-purpose financial reporting and the qualitative characteristics of useful financial information. In addition, the boards published a joint ED on the concept of a reporting entity in March 2010. (For a discussion of this ED, see Deloitte’s March 25, 2010, Heads Up.)
However, the IASB and FASB discontinued work on their joint framework project in 2010 to focus on more urgent projects. The IASB initiated an IASB-only project to revise its framework in 2012, and the FASB began a separate, FASB-only project in 2014. Accordingly, we no longer expect the two boards to develop a common framework.
In 2013, the IASB published a discussion paper containing its preliminary views on a range of fundamental accounting topics, such as determining what an asset or liability is and distinguishing between liabilities and equity. (See Deloitte’s August 26, 2013, Heads Up for more information.) The FASB is currently deliberating disclosure, presentation, and measurement issues. In March 2014, the FASB issued an ED describing a proposed disclosure framework that the Board would use in setting disclosure requirements. (For a discussion of this ED, see Deloitte’s March 6, 2014, Heads Up.) The FASB’s discussions related to measurement and presentation are still in an initial stage.
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Heads Up newsletters, published as warranted, analyze important accounting developments, such as new FASB and IASB pronouncements or exposure drafts. Concise examples and answers to frequently asked questions assist readers in understanding and implementing the critical guidance.