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The AICPA’s senior technical committee for financial reporting advised the International Accounting Standards Board (IASB) to continue focusing on completion of a conceptual framework, including a presentation and disclosure framework. The IASB requested the feedback when it issued its Agenda Consultation 2011 in July.
Richard Paul, chair of the AICPA’s Financial Reporting Executive Committee (FinREC), sent a letter to IASB chair Hans Hoogervorst on Wednesday commenting on the IASB’s agenda. The letter called on the IASB to establish fundamentals to guide the board as it continues to develop IFRS, so the standards satisfy objectives and are consistent and understandable.
The conceptual framework, Paul wrote, is needed to guide preparers of financial statements when they encounter gaps in the standards that are inevitable. The committee said the IASB has an opportunity to forestall disclosure overload while improving the quality of information provided by financial statements.
“It’s kind of like building a house,” Paul said in an interview for this story. “You need a solid foundation to start from before you start making decisions about individual aspects of the house.”
Paul wrote that a disclosure framework would help the board rationalize requirements and could focus preparers on providing clear communication of matters that are important for financial statement users to understand.
The letter said the conceptual framework project should consider how consistency should be emphasized in the framework. If that concept were further developed, Paul wrote, the IASB’s decision on the level of specificity in individual subsequent standards projects or the accompanying implementation guidance would be informed with that concept.
Paul’s letter said it is important to reach a common understanding in how much diversity in interpretations is acceptable, because that affects how the board should respond to jurisdictional implementation needs and differences. Paul and FinREC urged the board to communicate with national standard setters to address key goals in establishing a conceptual framework.
FinREC also encouraged the IASB to identify gaps in IFRS and consider how to fill them. Paul’s letter urged the board to expand its use of academic research; discuss emerging issues often with national and international regulators; and review financial reporting failures in hopes of identifying weaknesses in current standards. Those actions are requested to help the board improve its research of strategic issues for financial reporting and anticipate shorter-term issues before a reporting failure occurs.
FinREC’s recommendations:
Stated that completing the convergence projects should be the top standards-level focus for the IASB. FinREC advised the board to feel constrained by its conceptual framework in developing all its standards. Other priority standards projects, according to FinREC, should include financial instruments with characteristics of equity, and financial statement presentation.
Said the IASB should make post-implementation reviews a significant board activity, with a transparent process regarding feedback received and decisions made based on that feedback.
Encouraged the IASB to consider the process and level of activity of the IFRS Interpretations Committee. FinREC noted the recent uptick in issues considered by the committee, but is concerned that the right issues may not emerge in a timely manner. FinREC also prefers more transparency and due process around the Interpretations Committee’s agenda-setting process.
Paul said he appreciates the IASB’s decision to solicit input on its agenda.
“This is a thoughtful way to think through what the next set of projects is going to be,” he said. “And to take the opportunity to solicit broad input is a pretty good step, so I applaud the board for doing that.”
Source: Journal of Accountancy
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