The IASB/FASB Conceptual
Framework Project
A Public Sector Perspective
Kevin Simpkins
Outline
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Concepts – Why they matter
Overview of the Project
Progress to Date
Some Public Sector Issues
Concluding Thoughts
Concepts – Why they Matter (generally)
• The Basis for Accounting Standards
Development
• A Key Element in “Principles-based”
Standard setting
• An antidote to vested interests (or just
preconceived conclusions!)
• To enhance efficiency in standard-setting
Concepts – Why this project matters
• Key to IASB/FASB Convergence
• New concepts will have significant
influence internationally
• IPSASB’s implicit framework is that of the
IASB
• IASB/FASB work will be a key reference
source for the IPSASB
(Note that IPSASB is considering its strategy for a
Conceptual Framework at its meeting this month)
Overview of the IASB/FASB Project - Objective
“…to develop a common conceptual
framework that is both complete and
internally consistent…
…a sound foundation for developing future
accounting standards…”
Overview of the IASB/FASB Project - Process
• Building on the Existing Frameworks
• Concentrating on environmental changes
and omissions from existing frameworks
• Prioritising cross-cutting issues that affect
a number of projects
• Initially considering private sector business
entities only
Overview of the IASB/FASB Project – The Phases
Phase A
A
B
C
D
E
F
G
H
Topic
Objectives and qualitative characteristics
Elements, recognition and measurement
attributes
Initial and subsequent measurement
Reporting entity
Presentation and disclosure, including
financial reporting boundaries
Framework purpose and status in GAAP
hierarchy
Applicability to the not-for-profit sector
Entire framework
The IASB/FASB Project – Progress to Date
• Phase A – Objectives and Qualitative
Characteristics
– Exposure draft due in near future
• Phase B – Elements, recognition etc.
– Early work done on asset and liability
definitions
• Phase D – Reporting Entity
– Planning and Preliminary Analysis done
The IASB/FASB Project –
Some Public Sector Issues
• Timing of Consideration of Not-for-Profits
– Creates risk NFP context will not be well
considered
– Is delivering some concepts that are not
broadly applicable
– Inefficient as a standard-setting approach
– A challenge for “neutrality” – both transactions
and sectors
The IASB/FASB Project –
Some Public Sector Issues (cont)
• Stewardship/Accountability is not a Separate
Objective of Financial Reporting
– The objective is to assist investors and others in
making investment, credit and similar decisions
– Too narrow for the public sector – accountability is at
least a separate objective
– A risk – the pervasive impact of an incomplete
objective because “all things are related”
An aside: Whither prospective information?
The IASB/FASB Project –
Some Public Sector Issues (cont)
• Too narrow a Primary User Group
– Primary User Group is present and potential
investors and creditors
– In the public sector legislation and funders are
key users who cannot be excluded
• No recognition of Compliance
The IASB/FASB Project –
Some Public Sector Issues (cont)
• Pervasive Focus is on Assessing Cash
Flow Prospects
– Cash Flows are relevant to the public sector
but not always
– Service performance is a more important
focus for the public sector environment
– The focus extends deeply such as into the
asset definition area
The IASB/FASB Project –
Some Public Sector Issues (cont)
• Changes to the Qualitative Characteristics
– A process approach – new for all
– But does not encourage consideration of
differences between entities
– Relevance relates to “economic decisions of
users”
– Materiality is also related to “economic
decisions” of users
The IASB/FASB Project –
Some Public Sector Issues (cont)
• Asset Definition too Narrow
– Economic Benefits again!
– Benefits “to the entity”
– The notion of stand ready assets (and
liabilities) is new and needs careful
consideration
– No help with the tough issues – social policy
obligations especially
Concluding Thoughts
• This project is important as are the others
being worked on internationally
• The potential impacts are significant and
likely to be enduring
• The public sector needs to monitor the
work of both IASB and IPSASB and your
own national bodies and comment