Chapter 2 Conceptual Context Conceptual framework z Unified

Chapter 2 Conceptual Context

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

Interested parties z Profession z Government z Users yinvestors/lenders yemployees yinterest groups z Vested interests: political nature of process Chapter 2 © Philip O’Regan 2016 3

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

UK z Adopted US model z SSAP 2, Disclosure of Accounting Policies yfundamental concepts xgoing concern xaccruals/matching xconsistency xprudence ybases ypolicies z “Substance over form” Chapter 2 © Philip O’Regan 2016 5

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

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

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

IASB conceptual framework z Again, followed US template z 1989: ‘Framework for the Presentation and Preparation of Financial Statements’ yobjectives yqualitative characteristics yelements yrecognition ymeasurement z IASB/FASB: Joint Conceptual Framework Project Chapter 2 © Philip O’Regan 2016 9

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

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

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