Question

Identify Three key aspects of the IASB Conceptual Framework

( International accounting course)

Answer 1

The International Accounting Standards Board (IASB) has published its revised 'Conceptual Framework for Financial Reporting'. Included are revised definitions of an asset and a liability as well as new guidance on measurement and derecognition, presentation and disclosure. The new Conceptual Framework does not constitute a substantial revision of the document as was originally intended when the project was first taken up in 2004. Instead the IASB focused on topics that were not yet covered or that showed obvious shortcomings that needed to be dealt with.

Three key aspects of the IASB Conceptual Framework are as follows:-

• Recognition and derecognition. The Conceptual Framework states that only items that meet the definition of an asset, a liability or equity are recognised in the statement of financial position and only items that meet the definition of income or expenses are to be recognised in the statement(s) of financial performance. However, their recognition depends on two criteria: their recognition provides users of financial statements with (1) relevant information about the asset or the liability and about any income, expenses or changes in equity and (2) a faithful representation of the asset or the liability and of any income, expenses or changes in equity
  
• The elements of financial statements. The main elements of financial statements are assets, liabilities, and equity as well as income and expenses. They are explained below:-
  Asset. A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.
  Liability. A present obligation of the entity to transfer an economic resource as a result of past events.
  Equity. The residual interest in the assets of the entity after deducting all its liabilities.
  Income. Increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims.
  Expenses. Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims.
  
• Measurement. This framework provides different measurement bases (historical cost and current value (fair value, value in use/fulfilment value, and current cost)), the information that they provide and their advantages and disadvantages. Current cost is newly introduced into the Conceptual Framework as it is widely advocated in academic literature. The framework also sets out factors to consider when selecting a measurement basis (relevance, faithful representation, enhancing qualitative characteristics and the cost constraint, factors specific to initial measurement, as well as more than one measurement basis) and points out that consideration of the objective of financial reporting, the qualitative characteristics of useful financial information and the cost constraint are likely to result in the selection of different measurement bases for different assets, liabilities and items of income and expense.