The IASB/FASB Conceptual Framework Project

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The IASB/FASB Conceptual Framework Project

• A Public Sector Perspective
• Kevin Simpkins

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Outline

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

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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

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Concepts Why this project matters

• Key to IASB/FASB Convergence
• New concepts will have significant influence
  internationally
• IPSASBs 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)

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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

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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

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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

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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

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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

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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?

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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

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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

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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

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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

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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