Fundamental concepts of the IASB framework

The International Accounting Standard Mother board herein known as the IASB, models forth specifications that discussed in its Platform for the Preparation and Display of Financial Statements. The IASB construction pertains to general-purpose financial claims. That is, the primary financial claims (income declaration, balance sheet, etc. ) and the accompanying notes however, not additional financial or nonfinancial information, such as directors' reports, management discussion and examination, etc. The IASB construction because of its more limited scope, discusses targets in the framework of business entities only ("IFRSs and US, " 2007).

The IASB framework starts with a wide focus, by speaking about the targets in conditions of information beneficial to a variety of users to make economic decisions. It lists a wide variety of present and potential users. The IASB framework narrows that focus to a particular group of users. Reasons given include pragmatic reasons (for example, a emphasis to you shouldn't be vague or highly abstract) which meeting the information needs of this particular group of users will probably meet the majority of the needs of other users.

The aims of financial statements/reports have significant implications for other areas of the construction. For example, goals affect the elements, specifically the definitions of liabilities and collateral. If the objective of financial reporting is to provide information useful to shareholders in making financial decisions, this items toward defining collateral narrowly (for example, common shareholders only). Shareholders are considering the effect of transactions or situations on the worthiness of their shares (for example, dilution). On the other hand, if the aim of financial reporting is to provide information to a variety of users (for example, shareholders, lenders, suppliers, and different other users), this points toward a give attention to reporting the effect of ventures or occasions on the entity, not on the budget of one particular band of users.

Fundamental Concepts

Underlying Assumptions

The IASB framework prominently features two underlying assumptions: the accrual basis and the going-concern basis. Accrual accounting and related principles are reviewed extensively. On the other hand, the going-concern basis is disclosed in a footnote only.

Qualitative Characteristics

The IASB construction discusses qualitative characteristics of financial information in conditions of attributes that make the information provided useful to users in making monetary decisions. The IASB platform discusses important qualitative characteristics, qualitative characteristics and pervasive constraints, an outline of each uses this paragraph. The IASB platform also discusses constraints, such as cost-benefit considerations, and the trade-off between the various qualitative characteristics, such as relevance, and consistency. The IASB framework expresses that the exercise of prudence or conservatism will not permit the deliberate understatement of world wide web assets and gains.

The Planks have identified two characteristics so it has identified to be "fundamental qualitative characteristics. " Those are: relevance and faithful representation. The definitions are below:

Relevant - Financial Reporting information that has predictive value or confirmatory value.

Faithful Representation - Financial reporting complete and free from material error and neutral.

The Boards have identified improving qualitative characteristics to be:

comparability, verifiability, timelines, and understandability.

The pervasive constraints identified by the Table:

materiality and costs

("Conceptual framework for, Chapter 2" 2008).

In the IASB construction the assets definition has a central role, for the reason that all other component definitions are centered upon this is of belongings. That "asset primacy" is not because information about property is the main financial information. Somewhat, it is because, for a couple of definitions of elements of articulated financial statements to be internally consistent and prevent circularity, it includes to get started on by determining one of the elements and bottom the rest of the definitions upon that description.

Capital and Capital Maintenance

The principles of capital and capital maintenance concern how an entity defines its capital (that is, its store of wealth) for the purposes of distinguishing between an entity's go back on capital and its own go back of capital.

The IASB conceptual framework briefly talks about two principles of capital (and their associated capital maintenance principles): financial and physical (or operating capacity). It does not identify which of both principles should be implemented, other than to say that selecting the appropriate idea of capital are established upon on the needs of users of financial statements.

Pros and Downsides of Guidelines Based-System

The inherent characteristic of any principles-based framework is the probable of different interpretations for similar ventures. Proponents of worldwide adoption of IFRS work to ensure ensure that similar transactions would obtain the same treatment by companies around the world, leading to globally equivalent financial assertions.

A principle-based system addresses a broad area of accounting that remains steady with a clear 'Conceptual Platform'. The major benefit of principles-based accounting is the fact that the guidelines can be employed in a variety of situations/industries that avoids the need for managers to manipulate statements to fit a certain necessity (Toppe, Myring, 2009).

In principles-based accounting the rules are set but not necessarily dictated for every situation, which is one of the major concerns regarding this kind of accounting system. This situation signifies second-guessing and creates doubt and requires extensive disclosures in the financial claims. A lack of precise recommendations could create inconsistencies in the use of requirements across organizations. For instance sometimes financial information can be inconsistent from one company to the next in the same industry in doing so damaging the power for comparability (Doupnik, Perera, 2009).

In a principle-based accounting system, the regions of interpretation or discussion are clarified by the standards-setting plank, and provide fewer exceptions when compared to a rules-based system. However, IFRS include positions and direction are considered as packages of rules rather than sets of concepts.

Stated below are a few of the underlying concepts of IFRS offering a taste of impacts on the financial assertions and for that reason on the do of businesses.

Consolidation - IFRS favors a control model whereas U. S. GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown independently under IFRS.

Declaration of Income - Under IFRS, extraordinary items aren't segregated in the income affirmation, while, under US GAAP, they may be shown below the web income.

Inventory - Under IFRS, LIFO (a historical method of recording the worthiness of inventory, a company records the last units purchased as the first products sold) can't be used whereas under U. S. GAAP, companies have the choice between LIFO and FIFO (is a common way for recording the value of inventory).

Earning-per-Share - Under IFRS, the earning-per-share computation will not average the individual interim period calculations, whereas under U. S. GAAP the computation averages the individual interim period incremental shares.

Development costs - These costs are capitalized under IFRS if certain conditions are attained. Under U. S. GAAP development costs are expensed.


The Financial Accounting Standard Table herein referred to as the FASB, sets forth benchmarks that outlined in its collection of Concept Statements. The FASB framework applies to general-purpose exterior financial reporting. This includes not only the financial assertions but also other financial and nonfinancial information. For example other financial and nonfinancial information contained in company annual studies, company prospectuses and service performance information in the gross annual accounts of non-business entities ("IFRSs and US, " 2007).


The FASB framework contains two claims on objectives-one relating to business entities (Concepts Statement 1) and another associated with non-business entities.


Measurement is one of the most underdeveloped regions of the two frameworks. Both the IASB and FASB frameworks contain lists of measurement attributes found in practice. Those lists are broadly consistent, and are composed of historical cost, current cost, gross or world wide web realizable (pay out) value, current market value and present value. Both frameworks show that the utilization of different measurement capabilities will continue. However, neither provides information about how to choose between the several measurements attributes that exist. In other words, the construction lacks completely developed measurement concepts. Those measurement principles would need to cover both initial measurement and succeeding measurement. Subsequent dimension includes revaluations, impairment and depreciation.

The Boards will need to consider whether the conceptual framework will include not just dimension ideas but also guidance on the techniques of way of measuring. For instance, the FASB conceptual construction includes Concepts Declaration 7, on the use of cashflow information and today's value measurement technique to estimate reasonable value for the purposes of original acknowledgement and fresh-start accounting.

One cross-cutting measurement issue appears to be the unit of account-whether items are grouped at some level of aggregation alternatively than measured individually (Leuz, 2003).

Display-Presentation and Disclosure

The display section of the conceptual platform would cover principles for determining both where and exactly how recognized information are provided in the primary financial claims and what information are disclosed in the records or somewhere else in the financial reports.

At present, neither framework explicitly packages out definitive concepts of display. Some dialogue of display and disclosure in the frameworks (for example, both frameworks contain conversation of how information is reported to meet up with the targets of financial reporting, by briefly explaining the statements that comprise a full group of financial claims and the roles of notes and supplementary information). However, that commentary must be pulled jointly and developed further, to develop concepts of presentation and disclosure beneficial to the Planks in setting expectations for display and disclosure (Benston, Bromwich, Wagenhofer, 2006).

Fundamental Concepts

Underlying Assumptions

The accrual basis and the going-concern basis are not listed as underlying assumptions in the FASB framework.

Qualitative Characteristics

Both frameworks discuss qualitative characteristics of financial information in terms of attributes that produce the info provided beneficial to users to make financial decisions. Both frameworks have similar qualitative characteristics, for example, understandability, relevance, trustworthiness and comparability. Both discuss constraints, such as cost-benefit concerns, and the trade-off between your various qualitative characteristics, such as relevance and dependability.

However, there are some differences between your two frameworks. For example, the FASB Ideas Statements set out the characteristics in a hierarchy, treating understandability as a user-specific quality separate from others, relevance and stability as the primary features and comparability as a second quality. In contrast, the IASB platform treats all as principal qualitative characteristics.

Some improvements could be produced to the qualitative characteristics of both frameworks. For example, both include neutrality but also prudence or conservatism. Although both frameworks state that the exercise of prudence or conservatism will not allow the deliberate understatement of online assets and profits, some claim that any concept of prudence or conservatism is inconsistent with the concept of neutrality.

Discussions with constituents of both Planks suggest that important qualitative characteristics common to both frameworks may be misunderstood. For example, some constituents appear to equate dependability with auditability or verifiability, looking over the frameworks' interpretation of correspondence between your accounting information and the real-world financial conditions or incidents that it purports to represent. Misunderstandings and other difficulties with reliability appear to minimize across several present and potential jobs at one or both Boards, including revenue recognition, insurance contracts, and reasonable value measurement (IASB, 2006).

Conceptual Framework Job Visibility Draft - Some History

The first steps taken were to upgrade existing ideas to echo changes in market segments, tactics and the economic environment which may have occurred in recent years. It was concluded early in the joint task that major reconsideration to all or any areas of the IASB and FASB frameworks weren't needed. They were basically similar. The concentrate was aimed on bettering and attaining a convergence between the existing frameworks of every. The convergence process started with some visibility drafts.

The publicity drafts associated with the joint conceptual construction project are something of a distributed goal of the International Accounting Specifications Table (IASB) and the U. S. Financial Accounting Criteria Plank (FASB), herein known as "the Boards. " Their distributed goal is to develop the conceptual construction for financial reporting. The exposure drafts are available for public comment. All comments received by FASB are public information and also have been posted on their website.

The first talk paper granted in July 2006 eventually became the first in some joint publications that in the end became the first coverage draft. Up to now there has been many following drafts released on not only the conceptual construction but also on succeeding issues such as Disclosures, Borrowing Costs, Discontinued Procedures, Revenue Recognition, Loan consolidation, Rational Value Management, Liabilities and many more.

As part of the IASB's scheduled process, the Boards consult with practitioners by publishing conversation papers and Exposure Drafts on each of the proposed chapters of the normal framework. The new framework is anticipated to be a one document rather than a series of Notion Claims as is the current FASB framework.

The Current Coverage Draft- Conceptual Platform for Financial Reporting

The latest conceptual construction exposure draft printed in-may 2008 and like its predecessor was open up for open public comment. It really is anticipated that an additional subjection draft on the topic will follow incorporating inputs from various options and changes needed after future coverage drafts are posted on the various subject areas such as revenue recognition, liabilities, and disclosures amongst others.

Differences between GAAP and IFRS

The most frequent question one could have a much regarding the new framework is "what exactly are the changes?" The actual impact and producing costs on businesses could be huge will there be is a huge shift from the existing FASB standards. A huge shift appears unlikely as both are basing their shared framework largely upon the current FASB concept claims, athough there will be some differences. Some of those be attended to in the pages that follow. This list is not by any means an all-inclusive list of the difference, only a highlight of some of the more notable difference. These differences are subject to change in the foreseeable future with publication of new coverage drafts regarding the conceptual platform. An an outstanding article publicized by Deloitte that can bought at the following hyperlink: http://www. pwc. com/en_US/us/issues/ifrs-reporting/assets/ifrs_usgaapsep09. pdf. This article is a more comprehensive set of the differences between IFRS and GAAP that exceeds the scope of the research newspaper ("Conceptual platform for, para. BC1. 3" 2008), ("Current situation and, " 2010).

Authoritative Position of the Framework

Currently FASB's Idea Statements have the same authority as articles and textbook They are surpassed in expert by common accounting techniques. The International Financial Reporting Expectations (IFRS) requires entities preparing financial claims under its authority to consider the IASB Platform when there is no standard or interpretation that specifically pertains to an event, exchange or similar issue. This would give more authority to the material sourced by the preparers of United States financial statements ("Conceptual construction for" 2008).

General Purpose Financial Reporting

The concentration of the IASB Platform is on the prep of financial assertions. Currently FASB Assertion of Concepts targets financial reporting. The disparity between the two becomes less when one considers that the primary focus of FASB's conceptual framework is on the financial statements ("Conceptual platform for, para. BC1. 3" 2008).

First-time Adoption

Full retrospective program of IFRSs in force at the time of adoption. FASV has no specific standard for first-time adopters. The general practice of U. S. GAAP has been full retrospection application unless a particular standard states in any other case ("IFRSs and US, " 2007).


IFRS favors a control model whereas U. S. GAAP prefers a risks-and-rewards model. Some entities consolidated relative to FIN 46(R) may need to be shown independently under IFRS (Forgeas, 2008).

Statement of Income

Under IFRS, extraordinary items are not segregated in the income assertion, while, under US GAAP, they are shown below the net income (Forgeas, 2008).


Under IFRS, LIFO (a historical method of recording the value of inventory, a firm records the last models purchased as the first systems sold) can't be used while under U. S. GAAP, companies have the decision between LIFO and FIFO (is a common method for recording the value of inventory) (Forgeas, 2008).


Under IFRS, the earning-per-share computation does not average the average person interim period calculations, whereas under U. S. GAAP the computation averages the average person interim period incremental shares (Forgeas, 2008).

Development costs

These costs are under IFRS if certain standards are fulfilled, while they are simply expensed under U. S. GAAP (Forgeas, 2008).

Similarities between IFRS and GAAP

Below is a set of a few of the similarities between IFRS and GAAP. This list, as with the set of differences, is not an all-inclusive list but a selection of a few of the similarities.

Entity Perspective

The Planks are similar on this issue of users of financial assertions. They both concur that the list of potential users is broad and includes investors, lenders, lenders, employees, suppliers, customers, governments and governmental firms. They treat the entity perspective as the organization possessing a distinct separateness from its resources of capital providers ("Conceptual platform for, para. BC1. 11" 2008).

Primary User Group

Again the topic of who the principal users of financial claims are is essentially the same of both Planks. IASB Construction, paragraph 10 says:

"As traders are providers of risk capital to the entity, the provision of financial statements that meet their needs will also meet the majority of the needs of other users that financial statements can satisfy. "

FASB Concepts Declaration One focuses on the users of financial information being those whom use the information for investment and credit decisions ("Conceptual construction for, para. BC1. 3" 2008).

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