1. Chapter 2
Conceptual Context

2. Conceptual framework “Unified system of thought”
Foundation upon which to build practice
Issues:
Should items be included (recognized)?
At what value (measurement)?
Who decides?
Should content vary with user group?
Alternatives to financial statements?
Disagreement as to need and focus
Chapter 2
© Philip O’Regan 2016

3. Interested parties Profession Government Users
investors/lenders
employees
interest groups
Vested interests: political nature of process
Chapter 2
© Philip O’Regan 2016

4. US AICPA/SEC Wheat/Trueblood FASB Conceptual Framework Project
user group, decision-making, focus
objectives, characteristics, elements, etc.
recognition and measurement
an advance, but less than anticipated
Chapter 2
© Philip O’Regan 2016

5. UK Adopted US model SSAP 2, Disclosure of Accounting Policies
fundamental concepts
going concern
accruals/matching
consistency
prudence
bases
policies
“Substance over form”
Chapter 2
© Philip O’Regan 2016

6. UK ctd. Corporate Report (cf Trueblood) Sandilands – value/inflation
MCRV – radical proposals
Solomons – “value to the business”
ASB’s Statement of Principles (SoP)
8 chapters
follows FASB outline and emphasis
Chapter 2
© Philip O’Regan 2016

7. ASB SoP 1. Objectives – users/decision-making
2. Reporting entity – report if demand exists
3. Qualitative – relevant, understandable
4. Elements – assets, liabilities
5. Recognition – balance sheet focus
6. Measurement – “value to the business”
7. Presentation – detail, prominence, etc.
8. Interests in other entities
Chapter 2
© Philip O’Regan 2016

8. ASB SoP ctd. Main elements: Criticisms:
subordination of accruals to recognition
B/S (balance sheet) perspective – P&L (profit and loss) as by-product of B/S
evolution towards “value” measurement
Criticisms:
unnecessarily radical (recognition v. accruals)?
users not seeking change to value measures?
Chapter 2
© Philip O’Regan 2016

9. IASB conceptual framework
Again, followed US template
1989: ‘Framework for the Presentation and Preparation of Financial Statements’
objectives
qualitative characteristics
elements
recognition
measurement
IASB/FASB: Joint Conceptual Framework Project
Chapter 2
© Philip O’Regan 2016

10. IASB conceptual framework ctd.
2010: IASB issued ‘The Conceptual Framework for Financial Reporting’:
Reiterated emphasis on decision-usefulness
Importance of qualitative characteristics
comparability
understandability
2013: ‘Review of the Conceptual Framework for Financial Reporting’:
Contention over “prudence” concept
Highlighted political nature of process
Chapter 2
© Philip O’Regan 2016

11. Fair value IASB favours “fair value” as valuation basis
radical implications for accounting statements
attempt to portray “economic reality”
will introduce more volatility and subjectivity
Decision usefulness v. stewardship
IFRS 13, Fair Value Measurement
supplemented by other IFRS
Significance of introduction in financial crisis
Chapter 2
© Philip O’Regan 2016

12. Summary Role of conceptual framework
Dominance of Anglo-American perspective
Formulated via political process
User emphasis
Importance of recognition and measurement
Internationalization of project
Future of Conceptual Framework Project?
“Fair value”
Chapter 2
© Philip O’Regan 2016