Project Director Seema Jamil-O'Neill gives a summary of progress on the debate that has been generated by the preliminary views discussion paper on the first phase of the joint project by the IASB and FASB to revisit their conceptual frameworks.

As reported previously in Inside Track, the goal of the IASB and FASB project is to develop a common conceptual framework that both Boards can use in developing new and revised accounting standards. The ASB continues to monitor closely the project and we will provide updates on developments.

The first discussion paper (DP), published on 6 July, sets out the preliminary views of the IASB and the FASB on the objective of financial reporting and the qualities that make the information useful for decisionmaking. Responses are due in by 3 November. The ASB response to the IASB can be accessed via the ASB website at www.frc.org.uk/asb. The ASB developed its response following discussion at its own meetings as well as at public meetings with constituents. The ASB hosted a major public meeting on the proposals in the DP on 21 September, which attracted around 100 people. Copies of the presentations and papers for that meeting, as well as a summary of the proceedings, can be accessed from the ASB website at: http://www.frc.org.uk/asb/about/pub11 71.html

The ASB has a number of fundamental concerns with the proposals set out in the IASB's DP, as outlined below. The objective of financial reporting The first major issue for the ASB is the proposal that the objective of financial reporting should focus only on decision-usefulness, with stewardship being subsumed within this rather than being referred to as a specific part of the objective, or a separate objective. This, linked with an emphasis that the financial information should be useful in assessing future cash flows, is of great concern. The ASB supports the Alternative View from two members of the IASB set out in Chapter 1 of the DP that stewardship should be identified as a separate objective of financial reporting, or as part of the decision-usefulness objective.

As a useful contribution to the debate, Andrew Lennard, the ASB's Director of Research, has prepared a paper on stewardship which sets out a view of what stewardship is and why it is important. Andrew's paper, which can be accessed at the above web address, makes clear that stewardship should be seen not simply as information to assist in the assessment of the competence and integrity of 'stewards' (the management and directors) but as the provision of information that provides a foundation for a constructive dialogue between management and shareholders.

The primary users
The IASB and FASB have identified as the primary users of financial reports "present and potential investors and creditors, and their advisors". In the ASB's view, a number of problems arising from this have not been dealt with in any detail by the DP, including: the reasons for choosing the entity perspective at the expense of the shareholder perspective; whether users of the financial reports of listed, unlisted and small and medium-sized entities (SMEs) have the same information needs; and the contradiction between the entity perspective chosen and the primary user group identified. The ASB is recommending that the IASB and FASB should conduct more research in this area to address these issues before reaching any conclusions on the primary user group.

Qualitative characteristics: what happens to reliability?
The DP proposes replacing the qualitative characteristic of "reliability" in the current Framework with "faithful representation". The ASB believes that faithful representation is a softer notion which, when combined with a lack of specific identification of substance over form as a principle, could lead to a number of problems. The Board is also concerned about the introduction of "verifiability" as a component of faithful representation, which appears to be a weak notion which requires agreement between two parties of a calculation using the same assumptions, rather than requiring testing of the underlying assumptions. The ASB has suggested that the IASB should instead seek to clarify what is meant by "reliability" as a qualitative characteristic, rather than remove it.

Financial statements, or financial reporting? The focus of the IASB and FASB discussion paper is on financial reporting. The two Boards have concluded that the objective should be broad enough to encompass information that might eventually be provided by financial reporting outside the financial statements. But the Boards have yet to consider of specific issues concerning the boundaries of financial reporting and distinctions between financial statements and other parts of financial reporting is to be deferred to a later phase of the project. In the ASB's view, the IASB and FASB should define financial reporting sooner, rather than later, as the Board remains to be convinced that the Framework can be widened to encompass all financial reporting.

And there's more …
The ASB also has other concerns with the proposals in the DP. These can be summarised as follows:

• the ASB is concerned about the limitation of the scope of the Framework to business entities in the private sector and the proposal to consider the impact on not-for-profit entities towards the end of the project. In the ASB's view, the implications for not-for-profit entities should be considered as the project progresses; and
• the current IASB Framework is used by standard setters, preparers and auditors alike. The ASB is concerned that if the length and theoretical arguments contained in the DP were replicated in the final Framework it will alienate preparers and auditors. As such the ASB is urging the IASB to make every effort to ensure that the final Framework is not so theoretical and long that it acts only as a reference manual for standard setters.