The Financial Reporting Council (FRC) believes the concepts of prudence, stewardship and reliability should be reintroduced to the international accounting standards Conceptual Framework, as they are fundamental to financial reporting.
The FRC’s comments are made in its response to the IASB’s Discussion Paper.on its Conceptual Framework which sets out the concepts that underlie the preparation and presentation of financial statements. It identifies principles for the IASB to use when it develops and revises International Financial Reporting Standards (IFRSs). The FRC believes the Paper is a detailed and thoughtful overview of many complex issues.
Commenting on the FRC’s response, Melanie McLaren, FRC Executive Director, Codes and Standards said:
“The IASB’s Discussion Paper makes a number of valuable and thoughtful suggestions. In particular we welcome the emphasis placed on the importance of the profit and loss account as well as the balance sheet, and the recognition that financial reporting should not be based entirely on market values. As future standards will be developed from the Conceptual Framework, it is essential that the Conceptual Framework is of the highest quality possible. We hope that our suggestions will assist the IASB in achieving that.”
The FRC response also proposes that the IASB’s Framework states that financial statements show the performance of an entity’s business model. Of this, Melanie McLaren said:
“It is all too often said that directors cannot recognise their business from their financial statements. Accounting standards should allow an appreciation of the results of the business model.”
Roger Marshall, FRC Board member and Chairman of its Accounting Council said:
“In 2010, the IASB made some changes that downplayed the ideas of prudence, stewardship/accountability and reliability. We are pleased that the IASB has said that it will reconsider this in the light of work on the rest of the Conceptual Framework. In our response we explain why the importance of these ideas should be clearly acknowledged in the Conceptual Framework.”
The FRC’s response also suggests that a more fundamental analysis of issues relating to measurement of assets and liabilities than that provided in the Discussion Paper is required, and that the objective of the statement of profit or loss needs to be specified.
A copy of the FRC response can be downloaded here.
Notes to editors:
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
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