Question

The IASB released a revised Conceptual Framework in 2018. Explain why the changes it made in the definition of assets and liabilities subsequently had implications for the profits of reporting entities.

Answer 1

CONCLUSION

Far from revolutionizing the IFRS landscape, the new Conceptual Framework clarifies, redefines and supplements the existing version, re-examining the argument in the light of the fundamental characteristics of the financial statements and cost-benefit constraints.

In passing, the IASB has:

• Listened to the stakeholders and restored, albeit in different form, the concepts of prudence, stewardship, and substance over form, while introducing the concept of business activities to be taken into account when selecting a measurement basis;
• Separated the definition of the elements of the financial statements from the recognition criteria;
• Confirmed the development of its thinking by bringing the concept of control into line with the definition in recent standards, and by removing probability from the recognition criteria, so that this concept now only comes into play in measurement aspects;
• Clarified that the financial statements must be established from the perspective of the entity;
• Debunked two myths: that of ‘full fair value’, by developing measurement principles based on a mixed measurement model, and that of disappearance of the statement of profit or loss, by confirming that it is the main source of information for assessing the entity’s financial performance.

The Conceptual Framework will come into force:

• Immediately, for its own work and that of the IFRS IC;
• In 2020 for entities referring to it, where necessary.