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28 January 2014

EFRAG: Input received at Vienna and Vilnius joint outreach events on the review of the conceptual framework


EFRAG, AFRAC and the Lithuanian Authority of Audit and Accounting (AAT) have published a summary of their joint outreach event on the IASB Discussion Paper, 'A Review of the Conceptual Framework for Financial Reporting'.

The objective of these joint outreach events was to:

  • stimulate the debate on the Conceptual Framework in Europe;
  • obtain input from constituents, in particular from those that may not intend to submit a comment letter to AFRAC, AAT, EFRAG or the IASB, and to understand their main concerns and wishes;
  • receive input for AFRAC’s comment letter to EFRAG and the IASB; and
  • learn whether the preliminary comments as set out in EFRAG’s draft comment letter were shared by European constituents.

Comments received at AFRAC joint outreach event:

Participants noted that revisions of the Conceptual Framework are not easy and do not happen very often, therefore once the new Conceptual Framework is issued it is quite likely it will not be changed for many years. They thought that the IASB should take the time to develop conceptually sound long-term solutions.

The Discussion Paper proposes to define an asset as a present economic resource controlled by the entity as a result of past events. An economic resource is proposed to be defined as a right, or other source of value, that is capable of producing economic benefits. Participants had no problem understanding the term ‘capable’ in the definition of economic resource.

Participants also debated whether ‘to the entity’ should be added to the proposed definition of an economic resource included in the Discussion Paper. Several agreed. A participant noted that if an entity owns an apple tree it can account for the benefits from the apples but not from the oxygen the apple tree generates. Although the oxygen is the item that is benefiting society in general, rather than the entity, he thought that it should still be considered as an economic resource.

Feedback from EFRAG’s outreach activities in relation to the staff draft of the exposure draft Financial Statement Presentation suggests that the statements of cash flows, as currently defined, are of little value to the users of the financial statements of financial institutions, including insurance entities. A participant thought that the statement of cash flows was not needed for financial institutions as the information could be derived from other parts of the financial statements. It was also stated that the statement of cash flows is costly to prepare and provides little relevance for financial institutions.

Press release

Vienna feedback statement


Comments received at AAT joint outreach event:

Participants and speakers discussed the role of stewardship and whether there was a conflict between the provision of information about an entity’s previous transactions with the provision of information useful for predicting future net cash inflows. One speaker linked the difference between looking back, at what an entity has done, to looking forward, at what may happen. Another speaker thought that actual conflicts in standard-setting were rare. Users of financial statements needed fair values. One example was supermarkets who purchased ‘land-banks’ for potential future development. Holding these at historical cost may result in misleading information for investors as they are not being used to generate cash flows.

On reliability, speakers discussed its removal from the Conceptual Framework, noting that it had been done at the request of the FASB as part of the then joint project. The notion of faithful representation was not widely understood. This was particularly the case because there was no distinction made of materiality in the context of faithful representation.

Speakers noted that having lots of measurement bases in financial statements increases the complexity, both for preparers and for users. The proposal could help to reduce this increase in complexity.

Press release

Vilnius feedback statement



© EFRAG - European Financial Reporting Advisory Group


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