International Accounting Standards Board
30 Cannon Street
London
EC4M 6XH
27 September 2008
Dear Sirs
Objective of financial reporting and qualitative characteristics
The Association of Chartered Certified Accountants (ACCA) is pleased to have
this opportunity to respond to the exposure draft (ED) of ‘An improved
conceptual framework for financial reporting: Chapter 1 the objective of
financial reporting and Chapter 2 qualitative characteristics and constraints of
decision-useful financial reporting information’. The ED was considered by
ACCA’s Financial Reporting Committee and I am writing to give you their views.
Chapter 1 Objective of financial reporting
Paragraph OB2 limits the aim of financial reporting to the economic decisionmaking of capital providers. We note the contents of OB6(a) and OB12, but in
our view this should be an aim in addition to that of providing a report of the
management’s stewardship of the enterprise and a record of the performance
and position for which they are accountable to the owners. Accountability
should be the primary purpose of general purpose financial statements and this
more honestly reflects the limitations of historical reporting. Accounts prepared
on this basis would also continue to provide useful information to the capital
providers identified in the ED, and extra, specifically forward-looking
information more directed to the decision-making role could continue to be
provided within the framework.
The undue emphasis on the provision of information which is useful as input to
investing or credit decisions is the source of much of the expansion of
disclosure requirements that has rendered financial statements both lengthy
and very hard to understand. It is also the source of much of the measurement
complexity that has characterised recent developments in IFRS.
The users of accounts are now identified as capital providers and OB6(c) makes
clear this could be a very wide group, including for example employees as
providers of human capital. We agree that there is a wide range of users.
However with this wide primary user group, the framework will not help to
resolve issues where there might be differences between the needs of the
different capital providers, for instance between what to provide for equity
shareholders and what might be most useful for lenders. Our preference is for
the primary user group to be equity shareholders.
We prefer in general the choice of the entity over the proprietorial perspective,
when the objective is reporting primarily to the owners of the equity. With the
ED’s selection of a widely defined primary user group, an entity perspective
might ultimately imply there would be no useful information in distinguishing
debt from equity, which would be a mistake. The perspective for financial
reporting needs therefore more consideration.
OB18 states the primacy of reporting through changes in resources and claims
i.e the balance sheet approach. This seems to fly in the face of the evidence
that users look first and foremost to the income statement. We prefer the
statement in the FASB framework (referred to at BC1.35) that gives greater
emphasis to reporting performance, which is the predominant concern of equity
owners. The identification of trends in performance is the key role of financial
statements and therefore needs to be emphasised in this conceptual framework.
Chapter 2 Qualitative characteristics and constraints
The re-organisation into fundamental and enhancing characteristics and
pervasive constraints seems helpful.
We consider that ‘substance-over-form’ needs to be identified as a separate
characteristic. We note the reference to it in QC7. Despite that assertion it
seems possible that accounting for an item might be complete, neutral and free
from material error and yet still not depict the economic substance of the
transaction.
We do not agree with all reference to prudence as a concept being eliminated,
even simply to require an appropriate degree of caution in the face of
uncertainty. There is a continuing perception among users that financial
statements do indeed reflect this degree of caution, and there is currently plenty
of evidence for this in the existing standards. There is therefore a risk that users
could be misled if that element of prudence is no longer there or is removed in
certain areas.
In recent years the need for a reduction of complexity in financial reports and in
the accounting standards has become of greater significance. There is scope for
this chapter of the framework to do more to address some of those issues, for
example

QC23 and 24 mention conciseness but sufficient explanation and
reference to information overload and obscurity is not given, in
comparison say to BC2.34

QC28 is aimed at making sure all material items are included rather
than also trying to encourage irrelevant and immaterial matters to be
excluded to aid clarity
General
There are significant matters that are undecided by the Boards as yet. For
example
 status of the framework within the hierarchy of guidance to preparers
 the applicability of the framework to reporting by not-for-profit entities
Also the full implications are not always evident of the emphasis or meaning
attached to certain of the fundamental matters discussed in these two chapters.
For example, the entity perspective, where even in the Boards’ views the full
implications may not have been considered.
For these reasons the content of these two chapters should in our view remain
preliminary. The exposure of the Framework as a whole therefore will be a very
important step and must be open potentially to comment and change on all
matters.
If there are any matters arising from the above please get back to me.
Yours sincerely
Richard Martin
Head of Financial Reporting