Research topic: A review and revision of the Conceptual Framework for Financial Reporting
With reference to the IASB Conceptual Framework Project website and associated resources, as well as the relevant accounting literature, explain why the IASB decided to revise the conceptual framework with specific reference to: a. Measurement, presentation and disclosure; It was identified by the IASB board that the previous conceptual framework did not possess a section for measurement, presentation and for disclosure issues. Further as per the general accepted guideline on measurement, presentation and disclosure were too rigid, lengthy and detailed. Therefore the IASB board decided to arrange a single measurement basis to be used in measurement.Therefore two measurement bases were identified namely historical and current value measurement (Conceptual framework — Presentation and disclosure; elements of financial statements; capital maintenance (IASB only), 2020). Earlier in order do measurements the historical cost, revaluation cost, relevant cost, fair value etc were used. Further when identifying presentation requirements new definitions for assets and liabilities were introduced to identify its economic exposure more than it was previously used (2020). Further with regard to disclosure requirements in explanatory notes were widened to make it useful for the users to understand the financial statements more and more. (Conceptual Framework Phase E — Presentation and disclosure, 2020) b. Definitions of an asset and liability and recognition criteria; Previous definition of assets In the previous definition an asset is viewed as just a resource controlled by the entity and this asset has been arised or occured as a result of a past event and further it was stated that an asset would bring in future economic benefits or positive financial outcomes to the entity. New definition on assets. Within the new definition on assets which were introduced by the IASB (international Accounting Standards Board) board in March 2018, they have recognised an asset as a economic resource which would be controlled by the entity and further this asset is existing within the business as a result of a past event which has taken place. Further, a definition on economic resources has also been highlighted as an element which possesses the potential to produce economic benefits. Previous definition on liabilities Within the previous definition a liability was recognised as a present obligation or a present loan of the entity, further this obligation has arisen as a result of a past event which has occured within the entity and this obligation would result in future outflow of economic resources from the entity. New definition on liabilities Within the new definition on liability which were introduced by the IASB (international Accounting Standards Board) board in March 2018, they have recognised a liability as a present or currently available obligation of the entity to transfer an economic resource or an economic benefit to another party. Further this economic liability exists as a result of a past event.
Subsequently a definition has been identified for an obligation as a responsibility that cannot be avoided by the entity. (Revised Conceptual Framework for Financial Reporting | Crowe Maldives LLP, 2020) c. The roles of stewardship and prudence in financial reporting Stewardship could be viewed as an element which could be used as a useful tool when making decisions and professional judgements to identify tolerable levels of uncertainty measurement when denoting faithful representation when preparing financial statements. The newly introduced Conceptual Framework highlights specifically the importance of providing accurate information to the management’s to identify their stewardship in preparing and presenting financial statements and specifically states that faithful representation maintained when recording a transaction reports its economic substance and its legal substance. Prudence identified that when measuring financial statement elements namely the assets, liabilities, income, expenses and capital components that those needs to be reflected at their actual values to abide by all the qualitative characteristics of financial statements. In other words these elements cannot be overstated or understated. The full effort needs to be exerted to identify the actual value to faithfully represent them in financial statements. To align the qualitative characteristics to stewardship and prudence concepts the qualitative characteristics are mainly divided into two sections namely fundamental characteristics and enhancing characteristics. Fundamental characteristics comprises relevance and faithful representation and further the enhancing qualitative characteristics comprises comparability, verifiability, timeliness and understandability. (IFRS, 2020) References. Iasplus.com. 2020. Conceptual Framework — Presentation And Disclosure; Elements Of Financial
Statements; Capital Maintenance (IASB Only). [online] Available at:
<https://www.iasplus.com/en/meeting-notes/iasb/2013/march/cf-2> [Accessed 9 March 2020].
Grantthornton.global. 2020. [online] Available at: <https://www.grantthornton.global/globalassets/1.-member-firms/global/insights/article-pdfs/2018/ifrs-new s---a-revised-conceptual-framework-for-financial-reporting.pdf> [Accessed 9 March 2020]. Iasplus.com. 2020. Conceptual Framework Phase E — Presentation And Disclosure. [online] Available at: <https://www.iasplus.com/en/projects/completed/framework/framework-e> [Accessed 9 March 2020]. Crowe.com. 2020. Revised Conceptual Framework For Financial Reporting | Crowe Maldives LLP. [online] Available at: <https://www.crowe.com/mv/insights/revised-conceptual-framework-for-financial-reporting> [Accessed 9 March 2020].
Ifrs.org. 2020. IFRS. [online] Available at: <https://www.ifrs.org/projects/2018/conceptual-framework/> [Accessed 9 March 2020].