Contemporary fear of translation or interpretation issues but

Contemporary Issues in Corporate Reporting Formative

In 2004, the Financial Accounting Standards
Board (FASB) and the International Accounting Standards Board (IASB) began a
the Conceptual Framework Project in order to merge their approaches to applying
accounting standards and principals, in order to harmonise global financial
accounting practices, FASB (2017).
An Exposure Draft was issued in 2014 to outline many of the changes that are
going to occur once the new Conceptual Framework comes into practice, which is
predicted to be in the beginning of 2018, IFRS
(2017).

The first change that it mentioned in the
Exposure Draft is the objective of general purpose accounts and its link to
stewardship. The current Conceptual Framework doesn’t use the actual term
‘stewardship’ for fear of translation or interpretation issues but it does
refer to what stewardship entails. The proposal of including the term
‘stewardship’ was put forward by the IASB, with the aim of highlighting that stewardship
is an important aspect of the overall objective of the general purpose
accounts. (talk about Whittington 2008
for stewardship)

Another alteration of the Conceptual Framework
is the changes in the qualitative characteristics of financial information.
There are proposals to bring back the prudence concept. This was discarded from
the 2010 Framework as it was argued that prudence and neutrality could not
coexist, however after constituents gave their feedback the Board decided that
prudence was needed in modern-day accounting, not only to help counteract
management optimism, but also to help accountants be cautious in uncertain
conditions in order to achieve neutrality.

The Exposure Draft also addresses the issues
relating to ‘The Reporting Entity’, Exposure
Draft (2015) which is defined as “an entity that chooses, or is
required, to present general purpose financial statements”, PwC (2015). The issue of how to
establish a reporting entity’s boundary is highlighted in the exposure draft
and whether it is determined by control which is indirect (through consolidated
accounts) or direct (through individual financial statements). The Board argues
that there is a need for consolidated accounts in some circumstances, but some
argue that they do not go into any detail in the exposure draft as to how or
when entities should prepare them, EY
(2015). The Board’s response to this
is that they would prefer to embark on a standard-level project in order to
deal with that issue instead of going into too much detail for the proposed
Conceptual Framework.

The Exposure Draft also proposes changes to definitions of some of the
elements of the financial statements; assets and liabilities. Expenses and
income are also mentioned but the previous definition of those has been used
with no alternations. The definition of equity has remained the same for now
but the Board do intend to do further research and discussion on the definition
of equity due to the debate that arose though the discussions and feedback of
the Exposure Draft.

Assets are defined in the exposure draft as “a
present economic resource controlled by the entity as a result of past events”,
Exposure Draft (2015). The elements of ‘resource’ and ‘control’ to
assert the notion that in order for an organisation to recognise an asset in
their accounts they have to have the rights to obtain and direct the use of the
economic benefits they gain from it. Also an asset can only be recognised if it
is more than likely to materialise, this links with the prudence concept and
also with Hellman’s (2008) probability thresholds.

            Liabilities are defined in the
exposure draft as “a
present obligation of the entity to transfer an economic resource as a result
of past events” Exposure
Draft (2015). This definition
focuses on the company’s obligation to another entity and the exposure draft
provides some guidance on what it means to have an obligation and explains that
the company will not have any “practical ability to avoid it”. These new
definitions for both assets and liabilities, exclude the concept of expected inflow and outflow of resources due the many interpretations of ‘expected’.

Another change in the Conceptual Framework is the measures
for recognition. The proposal eradicated the threshold of probability and in
its place offers criteria in order to recognise an assets or liability. The criteria
includes: relevance,
faithful representation, and cost/ benefit. The IASB realised that the original
framework was not compatible with some areas of financial reporting; such as
IFRS 9 Financial Instruments. For this standard there is no probability recognition
principle, which otherwise would have meant that instruments such as derivatives would not
have been recognised. In trying
to address this issue, the IASB decided to propose listing existence
uncertainty of an asset or liability as one of the indicators that may lead to
a conclusion that recognition of that asset or liability may not produce
relevant information. The IASB believes that it would not be useful to provide
more detailed guidance on how to address existence uncertainty because the
facts are likely to depend very much on particular circumstances.

A new aspect introduced in the exposure
draft is a proposed framework for derecognition. The IASB focuses on full derecognition, partial derecognition, and continued
recognition, in order to reduce the inconsistencies that develop when derecognition
is applied, due to the lack of previous framework on this area. The derecognition
framework also provides insight on assets and liabilities that are retained
after an event which led to derecognition, concentrating on cases
in which those two objectives are in conflict. 

Another
alternation of the exposure draft is with regards to the measurement of elements
on the financial statements. After disregarding a single measurement system the
IASB decided to propose a multiple measurement system, which was a mixture of
historical costing and current value measures. The exposure draft also provides
a criteria in order to help accountants apply this change successfully and
consistently. The criteria includes describing what a historical cost and the
current value measurement are and highlighting some factors to contemplate when
choosing a measurement. It also suggests which measurements to use in some
situations and explains in more detail how to measure equity.

The
exposure draft also explores the presentation of financial statements and also
what is to be disclosed in them. The IASB (2016) argue that uniformity in
the presentation and disclosure of financial statements ensures ease of use to
the relevant parties. The
presentation and disclosure objectives and principles discussed in the ED are:
• The balance between entities’ flexibility to provide relevant information
that faithfully represents the entity’s assets and liabilities and the
transactions and other events of the period, and comparability among entities
and across reporting periods. • Entity-specific information is more useful than
boilerplate language for efficient and effective communication. • Duplication
of information in various sections of the financial statements is unnecessary
and makes financial statements less understandable.

Another area that the exposure draft addresses
is the maintenance of capital. It realises the differences between financial capital
and physical capital, and although the IASB have carried forward many of the
aspects from the current framework, there are some key minor changes in order
to improve terminology consistency. The IASB also went further to state that
there may be a future project in order to address changes to the description of
capital maintenance in order to account for possible high inflation. However,
there is no plan to start such a project in the near future.