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Conceptual Framework for Financial Reporting

Armen Hovhannisyan Armen Hovhannisyan

ED/2015/3 'Conceptual Framework for Financial Reporting'

The Grant Thornton International Ltd IFRS Team has submitted its comments on the IASB Exposure Draft ED/2015/3 'Conceptual Framework for Financial Reporting' (the ED). 

The Conceptual Framework describes the objective of, and the concepts for, general purpose financial reporting. The current Conceptual Framework has been criticised for a number of different reasons including a lack of clarity, failing to address some important concepts and for not reflecting the IASB’s current thinking. The publication of the IASB's Exposure Draft is an attempt to address these concerns.

Overall we believe that the ED builds successfully on the preceding Discussion Paper and also represents a considerable improvement on the existing Conceptual Framework. We also agree with most of the proposed changes, subject to various detailed comments.

Our most significant comments relate to the following areas.

• Prudence

We believe that an 'asymmetric' notion of prudence is and should continue to be a feature of standard-setting decisions.

• Equity

We support the proposal to define equity as a residual for the time being but we encourage the IASB to consider other approaches to defining equity that might result in more useful information as its research project in this area progresses.

• Other comprehensive income (OCI)

Although we acknowledge that developing a robust conceptual distinction between profit and loss and OCI might not be practical as part of this project, we do think some more work is needed before issuing a revised Conceptual Framework. 

The IFRS team has also submitted its comments on the related Exposure Draft ED/2015/4 'Updating References to the Conceptual Framework - Proposed amendments to IFRS 2, IFRS 3, IFRS 4, IFRS 6, IAS 1, IAS 8, IAS 34, SIC-27 and SIC-32'.

Please review the attached pdfs for more detail.