Proposal to review the IFRS conceptual framework
In 2011, the IASB reintroduced on its agenda the project to review the conceptual framework on which IFRSs are based. Clearly, this framework is out of date and includes a number of gaps. Accordingly, the IASB published a Discussion Paper on the issue in 2013 from which the deliberations will be used to prepare the Exposure Draft expected early next year.
Main changes proposed
In this project, the IASB proposes many amendments, clarifications and new features. Given their importance, the Discussion Paper addresses the definitions of assets and liabilities, briefly outlines the proposed guidance on derecognizing assets and liabilities, and presents the principles of financial statement presentation and disclosure requirements.
Definitions of assets and liabilities
The IASB proposes to clarify the definitions of assets and liabilities by confirming that an asset is a resource and a liability is an obligation. Essentially, the current definitions focus instead on the economic benefits derived from an asset or the outflow of resources embodying economic benefits from a liability, which seems to cause confusion. In addition, it is suggested to remove the concept of probability (expected), which is found in the current definitions when referring to future economic benefits. To account for an asset or a liability, the asset must be able to generate economic benefits and the liability must result in an outflow of resources embodying economic benefits without regard for the probability of occurrence. For example, if this proposal is accepted, the definitions of contingent asset and contingent liability could change, since the concept of probability currently guides their recognition.
Derecognition of assets and liabilities
The IASB recommends including in the conceptual framework approaches and factors to consider when developing standards that cover transactions resulting in an entity retaining part of an asset or a liability. To adequately reflect the nature and significance of these changes on the entity’s resources and obligations, the approaches include: fully derecognizing the original asset or liability and recognizing the retained asset (resources) or liability (obligation); partially derecognizing the asset or liability transferred in the transaction or continuing to recognize the asset or liability in question and recognizing the cash flow as a loan received or granted.
Presentation and disclosure
The proposal to include communication principles in the conceptual framework is of particular interest. This proposal should help respond to complaints expressed by stakeholders about inadequate disclosures in financial statements highlighted during the last financial crisis. In this context, it is recommended that these principles be included by considering the relevance of the financial information. On this basis, the guidance should result in disclosures that are clear, balanced, understandable and entity-specific. The guidance should not result in the duplication of information in the financial statements and should seek to optimize comparability, without compromising the usefulness of the information disclosed. In terms of tangible effects, it is important to note that recently adopted disclosure standards place greater emphasis on the objectives of this guidance, which is already consistent with the spirit of the proposals.
Even though the adoption of the conceptual framework will not result in immediate changes to IFRSs, the standards will still potentially be affected. Therefore, it is worth monitoring the development of this project to better understand the directions taken, so that the standards will be easier to implement once they are adopted.
Line Courtemanche, CPA auditor, CA
Member of the working group on IFRS