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The IASB/FASB Conceptual Framework Project

The IASB/FASB Conceptual Framework Project. A Public Sector Perspective Kevin Simpkins. Outline. Concepts – Why they matter Overview of the Project Progress to Date Some Public Sector Issues Concluding Thoughts. Concepts – Why they Matter (generally).

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The IASB/FASB Conceptual Framework Project

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  1. The IASB/FASB Conceptual Framework Project A Public Sector Perspective Kevin Simpkins

  2. Outline • Concepts – Why they matter • Overview of the Project • Progress to Date • Some Public Sector Issues • Concluding Thoughts

  3. Concepts – Why they Matter (generally) • The Basis for Accounting Standards Development • A Key Element in “Principles-based” Standard setting • An antidote to vested interests (or just preconceived conclusions!) • To enhance efficiency in standard-setting

  4. Concepts – Why this project matters • Key to IASB/FASB Convergence • New concepts will have significant influence internationally • IPSASB’s implicit framework is that of the IASB • IASB/FASB work will be a key reference source for the IPSASB (Note that IPSASB is considering its strategy for a Conceptual Framework at its meeting this month)

  5. Overview of the IASB/FASB Project - Objective “…to develop a common conceptual framework that is both complete and internally consistent… …a sound foundation for developing future accounting standards…”

  6. Overview of the IASB/FASB Project - Process • Building on the Existing Frameworks • Concentrating on environmental changes and omissions from existing frameworks • Prioritising cross-cutting issues that affect a number of projects • Initially considering private sector business entities only

  7. Overview of the IASB/FASB Project – The Phases Phase A Topic A Objectives and qualitative characteristics B Elements, recognition and measurement attributes C Initial and subsequent measurement D Reporting entity E Presentation and disclosure, including financial reporting boundaries F Framework purpose and status in GAAP hierarchy G Applicability to the not-for-profit sector H Entire framework

  8. The IASB/FASB Project – Progress to Date • Phase A – Objectives and Qualitative Characteristics • Exposure draft due in near future • Phase B – Elements, recognition etc. • Early work done on asset and liability definitions • Phase D – Reporting Entity • Planning and Preliminary Analysis done

  9. The IASB/FASB Project – Some Public Sector Issues • Timing of Consideration of Not-for-Profits • Creates risk NFP context will not be well considered • Is delivering some concepts that are not broadly applicable • Inefficient as a standard-setting approach • A challenge for “neutrality” – both transactions and sectors

  10. The IASB/FASB Project –Some Public Sector Issues (cont) • Stewardship/Accountability is not a Separate Objective of Financial Reporting • The objective is to assist investors and others in making investment, credit and similar decisions • Too narrow for the public sector – accountability is at least a separate objective • A risk – the pervasive impact of an incomplete objective because “all things are related” An aside: Whither prospective information?

  11. The IASB/FASB Project –Some Public Sector Issues (cont) • Too narrow a Primary User Group • Primary User Group is present and potential investors and creditors • In the public sector legislation and funders are key users who cannot be excluded • No recognition of Compliance

  12. The IASB/FASB Project –Some Public Sector Issues (cont) • Pervasive Focus is on Assessing Cash Flow Prospects • Cash Flows are relevant to the public sector but not always • Service performance is a more important focus for the public sector environment • The focus extends deeply such as into the asset definition area

  13. The IASB/FASB Project –Some Public Sector Issues (cont) • Changes to the Qualitative Characteristics • A process approach – new for all • But does not encourage consideration of differences between entities • Relevance relates to “economic decisions of users” • Materiality is also related to “economic decisions” of users

  14. The IASB/FASB Project –Some Public Sector Issues (cont) • Asset Definition too Narrow • Economic Benefits again! • Benefits “to the entity” • The notion of stand ready assets (and liabilities) is new and needs careful consideration • No help with the tough issues – social policy obligations especially

  15. Concluding Thoughts • This project is important as are the others being worked on internationally • The potential impacts are significant and likely to be enduring • The public sector needs to monitor the work of both IASB and IPSASB and your own national bodies and comment

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