Revisions to the Conceptual Framework for IFRS Standards

The International Accounting Standards Board (IASB) has issued a revised version of its Conceptual Framework for Financial Reporting which underpins IFRS Standards.

Companies will need use the new framework from 2020 although the IASB will start using it immediately. 

The objectives of the Conceptual Framework are:

  • to set out the fundamental concepts of financial reporting; 
  • to ensure that the Standards are conceptually consistent and that similar transactions are treated the same way;
  • to assist companies in developing accounting policies for particular transactions when no IFRS Standard applies; 
  • to help other stakeholders to better understand the Standards; and
  • to guide the IASB in developing IFRS Standards.

The new Conceptual Framework emphasises the objective of IFRS financial reporting as providing financial information that is useful to investors and others when deciding whether to provide resources to a company. It highlights that investors need information about both: 

  • financial performance - income and expenses; and 
  • financial position - assets, liabilities and equity.

The revisions include: 

  • a new chapter on measurement which explains how to decide when assets and liabilities should be measured using historical cost and when they should be measured at current value;
  • guidance on reporting financial performance; 
  • clarifications in important areas, such as the roles of stewardship, prudence, and measurement uncertainty in financial reporting; and
  • improved definitions and guidance. In particular, the definitions of assets and liabilities focus on a company’s rights and obligations. Decisions on what information to report about assets, liabilities, income and expenses should be based on what is useful to investors. 

The revisions reintroduce the concept of ‘prudence’; defined as: 'the exercise of caution when making judgements under conditions of uncertainty'.  However, many IFRS standards apply a wider definition of prudence which requires 'a lower threshold for the recognition of liabilities and losses than for assets and gains.'  This is often referred to as asymmetric prudence and is not just applied in well-established accounting standards but has been also been applied in the new revenue standard IFRS 15 Revenue from Contracts with Customers.  Despite this, the concept has not been included in the revised framework.

In addition, the IASB has issued Amendments to References to the Conceptual Framework in IFRS Standards to update references in IFRS Standards to previous versions of the Conceptual Framework. 

For further information, please speak to your usual RSM contact.