06 June 2013

EFRAG: Fourth issue of the Conceptual Framework newsletter

EFRAG, ANC, ASCG, FRC and OIC have released the fourth issue of their Conceptual Framework newsletter, 'Keep up with getting a better framework', informing European constituents on the latest developments regarding the progress of the Conceptual Framework project with the IASB and other stakeholders.

The fourth issue of the newsletter summarises how the input that the IASB received at the April 2013 meeting of the Accounting Standards Advisory Forum (ASAF) is now reflected in the IASB’s tentative decisions on the Conceptual Framework project.

The issues considered in the newsletter are:

• measurement;
• presentation in the statements of profit or loss and comprehensive income;
• uncertainty;
• the role of the business model;
• the unit of account;
• additional issues ASAF members wanted to be considered in the Conceptual Framework; and
• the comment period for the IASB discussion paper.

Measurement

Some ASAF members (including the European delegation) supported the IASB’s initial view that the most relevant measurement would depend on how an entity uses an asset or settles a liability. One non-European member, however, thought that this would reduce comparability and thought that overarching principles were needed so measurements could be added together to get an aggregate that made sense. Also, a European member noted that in deciding on measurement, links between assets and liabilities had to be taken into account.

After the meeting, the IASB has not made any tentative decisions to change its initial view.

Presentation in the statements of profit or loss and comprehensive income

Based on the IASB’s tentative decisions, the discussion paper (the DP) will present proposals for how to distinguish between profit or loss and other comprehensive income by describing what types of items could be presented in other comprehensive income. Some ASAF members thought that in order to be able to apply this distinction on a consistent basis, the IASB should define profit or loss, other comprehensive income or performance of an entity. However, some IASB members questioned whether that would be possible.

Uncertainty

All members of the ASAF agreed with the tentative IASB proposal to consider two types of uncertainty. Uncertainty related to the existence of an asset and liability and uncertainty regarding the outcome of an asset and liability. However, members had different views on how to deal with uncertainty when recognising assets and liabilities.

The current Conceptual Framework includes recognition criteria stating that an item should (only) be recognised if it is probable that any future economic benefit associated with the item will flow to or from the entity. The European delegation thought that such recognition thresholds should be maintained although it should be discussed how the thresholds should be set and whether they should be similar for assets and liabilities (see also the Bulletin Uncertainty). Other ASAF members disagreed: they thought that the Conceptual Framework should not include any recognition thresholds. After the ASAF meeting the IASB tentatively decided that there should be no recognition criteria regarding outcome uncertainty and existence uncertainty. Instead the DP may propose that the IASB should not require recognition of an asset or a liability if the IASB concludes that such recognition would not be (sufficiently) relevant considering the cost constraint.

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