ADVANCED CORPORATE REPORTING

Advanced corporate reporting

Advanced corporate reporting

Introduction

The project by the IASB and FASB to develop a joint conceptual framework, derived from their existing frameworks, is likely to influence the development of accounting standards for many years to come. It is therefore not surprising that the first discussion papers resulting from the project have attracted much fiercer criticism than the standard setters seem to have anticipated, or that much of this criticism has come from within the European Union, which is committed to adopting the International Financial Reporting Standards (IFRS) of the IASB. (Fogel, 2009, 1420-1426)

The issue that seems likely to attract most controversy is that of Measurement, which has not yet reached discussion paper stage within the conceptual framework project. In particular, the IASB's perceived preference for Fair Value (FV) as a measurement objective is likely, if expressed in the conceptual framework discussions, to be strongly contested. This issue has already been raised by an earlier discussion paper issued (but not endorsed) by the IASB, and authored by staff of the Canadian Accounting Standards Board(2005) which praised the positive properties of FV. Controversy has been further stirred by the IASB's publication, as a discussion paper (November 2006), of the FASB's SFAS157 (2006), which attempts to prescribe the interpretation of FV within FASB standards as being a current market sale price, ignoring transaction costs and free of entity specific assumptions. Many critics feel that the adoption of this within IASB standards would change present practice significantly and adversely, because IFRS apply FV more widely to non-financial assets than do FASB standards. Sale prices are seen as less relevant and less reliable in the case of non-financial rather than financial assets. (Fogel, 2009, 1420-1426)

Although FV is a focus for much of the recent criticism of the IASB's standards and is also likely to be so for its conceptual framework project, the reasons for the criticism lie in other elements of the framework. Critics of FV are, in fact, offering an alternative 'world view' of financial reporting, although this view is usually not well articulated. Nor, for that matter, is the FV world view well articulated: the argument is usually conducted on the basis of accepting a few simple assumptions that make FV seem to be an obvious choice, whereas the assumptions are what should be under discussion.

Analysis

Both the FASB and the IASB already have conceptual frameworks. The FASB's was the first, dating mainly from the nineteen seventies , and consists of seven substantial concepts statements, each published separately. The IASB's Framework for the Preparation and Presentation of Financial Statements (1989) is a much briefer single document of 110 paragraphs, dating from 1989. Its content shows a strong affinity with the FASB's earlier work, although there are important differences of detail. One important similarity is that, like the FASB framework, it lacks a treatment of measurement and is therefore incomplete. (Fogel, 2009, 1427-1432) This is a legacy of the fierce and unresolved debates that took place particularly in the nineteen seventies, when standard setters ...