RECENT DEVELOPMENT OF

CONCEPTUAL FRAMEWORK

Name of Group Members

Reajmin Sultana

16-119

Aziza Akhter

16-136

Arifa Tun - Naim

16-153

Background of New Conceptual

Framework
Conceptual framework is a guideline of setting accounting
rules, concepts and principles used in resolving financial
reporting issues. IASB and FASB used to have their
own conceptual frameworks.
Concept of new or revised conceptual framework came
through Norwalk Agreement made between IASB and
FASB in October 2002. Purpose of this agreement is to
build up a common conceptual framework to remove
differences and converge on high quality standards of
IASB and FASB.

contd

IASB
Framework for
Preparation &
Presentation of
Financial
Statements
(published in
1989 & adopted
in 2001)

FASB
Statements of
Financial
Accounting
Concepts
/Concepts
Statement

New conceptual
framework
Conceptual
Framework for
Financial
Reporting
(came through
exposure draft
on 28
September
2010)
4

Development of Framework through

Phases
IASB and FASB are bringing developments in new conceptual
framework through eight phases. The current status of revised
conceptual framework with work on these phases are
summarized below:
Phase

Status

Phase A: Objectives and

qualitative characteristics

Completed, Conceptual Framework

for Financial Reporting 2010 issued on
28 September 2010

Phase B: Elements and

recognition

To be further considered as part of the

IASB-only comprehensive project
5

contd

Phase

Phase
Measurement

Status

C: To be further considered as part of the

IASB-only comprehensive project

Phase D: Reporting Exposure Draft ED/2010/2 Conceptual

Entity
Framework for Financial Reporting: The
Reporting Entity published on 11 March
2010. To be further considered as part of
the IASB-only comprehensive project

contd

Phase
Phase
Presentation
disclosure

Status
E: To be further considered as part of the IASBand only comprehensive project. However, this will
not be extended to other areas within the
original scope of phase E, such as preliminary
announcements and press releases

Phase F: Purpose Work on this phase is to be discontinued as the

and
status
of project is being continued as an IASB-only
framework
project. One of the objectives of this phase was
to reach a converged IASB-FASB view on the
secondary purpose of the framework to assist
preparers in preparing financial statements
(which is not present in US GAAP).
7

contd

Phase

Status

Phase G: Application to not- Work on this phase will be

for -profit entities
discontinued as the current
focus of the IASB is on
business entities in the
private sector
Phase H: Remaining issues This phase will not needed as
the remaining topics to be
considered as part of the
IASB-only
project
are
intended to be developed and
issued together
8

Comparative Position of Old and New

Conceptual Framework in terms of structure
Conceptual framework has been structured into four chapters.
Work on Chapter 1 & 3 has been completed under Phase A and
work on Chapter 2 & 4 is processing.
Chapter

Old Framework

New Framework

Chapter 1:
Objectives

Objectives of
financial statements
used to contain 16
paragraphs

Objectives of general
purpose financial
reporting contains 21
paragraphs

Chapter 2:
Reporting Entity

Paragraphs will be
added in near future

Work on this yet not

finalized
9

contd

Chapter

Old Framework

Chapter 3:
Qualitative
characteristics

Used to contain 23 Containing 39

paragraphs
paragraphs

Chapter 4: The
Used to contain 66
framework remaining paragraphs
text
(assumption,
elements,
measurement,
recognition)

New Framework

Containing 65
paragraphs
(accrual basis
assumption is not
carried over)

10

Chapter 1: The Objective of General

Purpose Financial Reporting
Major development/change regarding the issues:1. Title
2. Content
3. Scope
4. Users
5. Use
6. Information about

11

contd

1. Title
Framework (1989)

Conceptual Framework (2010)

The objective of financial The objective of general

statements
purpose financial reporting

12

contd

2. Content
Framework (1989)

Conceptual Framework (2010)

To provide information about

the
financial
position,
performance and changes in
financial position of an entity
that is useful to a wide range
of users in making economic
decisions.

To provide financial information

about the reporting entity that is
useful to existing and potential
investors, lenders and other
creditors in making decisions
about providing resources to the
entity.

13

contd

3. Scope
Framework (1989)

Conceptual Framework
(2010)

financial statements (of General purpose financial

an entity)
reporting (of the reporting
a central part of financial entity)
reporting, do not cover all.
exclusion of special
purpose financial reports.

14

contd

4. Users
Framework (1989)

Conceptual Framework (2010)

A wide range of users

present and potential investors,
employees, lenders, suppliers
and other trade creditors,
customers, governments and
their agencies and the public.

primary users present and

potential investors, lenders and
other creditors.
other potential users
customers, governments and their
agencies and the public being
interested about financial reports
but not primary users.

15

contd

Reasons of separating primary users from other

potential users

having the most critical and immediate need for the

information and not being able to get information from the
entity directly.
necessity to focus on the needs of participants in capital
markets.
meeting the needs of the specified primary users means
meeting the needs of shareholders and stakeholders from
corporate governance perspective.

16

contd

5. Use
Framework (1989)

Conceptual Framework
(2010)
In
making
economic in making decisions about
decisions.
providing economic resources
disposal of stewardship of to the entity.
management for the resources buying, selling or holding
entrusted to it.
equity and debt instruments;
and providing or settling loans
and other forms of credit.
description
of
what
stewardship encapsulates.
17

contd

6. Information about
Framework (1989)

Conceptual Framework (2010)

Information
about
the Financial information about the
financial
position, financial position of a reporting
performance and changes in entity.
financial position of a
reporting entity.

18

Chapter 2: The Reporting Entity

As per Framework (1989):
A reporting entity is an entity for which there are users who rely
on financial statements as their major source of financial
information about the entity [para 8].
As per Exposure Draft (2010c):
A reporting entity is a circumscribed area of economic activities
whose financial information has the potential to be useful to
existing and potential equity investors, lenders and other creditors
who cannot directly obtain information, they need in making
decisions about providing resources to the entity and in assessing
whether management and governing board of that entity have made
efficient and effective use of the resources provided [RE2].
19

contd

Feature of a reporting entity as per the ED (2010c):

a) Conduction or possibility of conduction of economic
activities
b) Objectively distinguishable from other entities and from the
economic environment in which the entity exists
c) Having the potential of being useful in making decisions
about providing resources to the entity and in assessing
whether the management and governing board have made
efficient and effective use of the resources provided.

20

Chapter 3: Qualitative Characteristics

of Useful Financial Information
Framework (1989)

Conceptual Framework (2010)

are of financial statements

only
the attributes that make the
information
provided
in
financial statements useful to
users.

are of useful financial

information
the attributes applicable to
financial information provided
in financial statements, and to
financial information provided
in other ways.

21

contd

Framework (1989)

Conceptual Framework (2010)

Four principal qualitative

characteristics

understandability,
relevance,
reliability, and comparability.

Two fundamental qualitative

characteristics relevance and
faithful representation.
Four enhancing qualitative
characteristics comparability,
verifiability,
timeliness
and
understandability.

22

contd

Relevance:
having predictive or confirmatory/feedback
value or both.
having the ability to influence the decisions
of capital providers.

23

contd

Faithful Representation:
being used instead of using the term reliability .
aspects of reliability substance over form, prudence and
verifiability are not considered as aspects of faithful
representation.
embodies substance over form condition as a component of its
own.
having the ability to ensure that decision- useful financial
information represents faithfully the economic phenomenon that
it purports to represent.
achieving during the depiction of economic phenomenon is
complete, neutral and free from error replacing the term
reliability.
24

contd

Enhancing Qualitative characteristics

No fundamental changes in qualitative characteristics but
now more structured and comprehensive.
Comparability: Identify real similarities and differences in
economic events.
Verifiability: Information should represent economic
phenomena faithfully.
Timeliness: Having information available to decision maker in
time of decision.
Understandability: Classify, Characterize and present
information clearly and concisely.

25

contd

Constraints

Old Framework
Timeliness
Balance between cost and benefit

New Framework
Cost constraint

26

contd

No desirable qualitative characteristics named ..

True and Fair View/Fair representation

27

Chapter 4:The Framework (1989)

The Remaining Text
Underlying Assumption
Old Framework:
1. Going Concern
2.Accrual Basis
New framework:
Only Going Concern

28

contd

Working on

The elements of financial statements

Recognition of the elements of financial statements
Measurement of the elements of financial statements
Concepts of capital and capital maintenance

29

Applicability of IFRS & the

Conceptual Framework in Bangladesh
Under rule 12(2) of the Securities and Exchange Rules
(SER) 1987:
The financial statements of an issuer of a listed security
shall be prepared in accordance with the requirements laid
down in the Schedule and the International Accounting
Standards as adopted by the Institute of Chartered
Accountants of Bangladesh [SEC, 2010].
Adoption of accounting standards by ICAB from 1984 and
getting statutory cognizance from SEC only in October
1997.
30

contd

Under the notification of SEC on June 4, 2008:

All the effective IFRSs/IASs are applicable for a listed
company in Bangladesh.
Under the notification of SEC on September 27, 2009:
Implementation of quarterly reporting will be effective
from the quarter ending September 2009.

31

Potential Benefits of the New

Conceptual Framework
A universal global foundation for accounting concepts and
principles.
Broader and refined scope of accounting.
Identification of specific users of accounting information.
help the users to make resource allocation decisions.
help to identify a reporting entity for which financial
reporting should be done.
help to provide more valuable and useful financial reports.

32

Limitation of revised Conceptual

framework

Slow Progress
The concept of Comprehensive income may cause
confusion about true earnings
Termination of the term Stewardship may narrow the
responsibility of world organization
Inclusion of unrealized gain causes discontinuation of
Prudence (or conservatism )

33

Thanks to all of you.