News November 2015 FRC has called on the IASB to reconsider its proposed Conceptual Framework

FRC has called on the IASB to reconsider its proposed Conceptual Framework

25 November 2015

PN 71/15

The Financial Reporting Council (FRC) has called on the IASB to reconsider its proposed Conceptual Framework so that it properly reflects the importance of stewardship, prudence and reliability, which it describes as cornerstones of the Framework. 

The FRC’s comments are made in its response to the IASB’s Exposure Draft on its Conceptual Framework.  This identifies principles for the IASB to use when it develops and revises International Financial Reporting Standards (IFRSs).

Melanie McLaren, FRC Executive Director, Codes and Standards said:

“We have consistently made clear to the IASB that stewardship, prudence and reliability are fundamental to financial reporting.  Although the Exposure Draft goes further than the IASB has previously in recognising their importance, significant further development is essential if we are to be confident that future IFRSs are to be of high quality.  We hope that our input will assist the IASB in doing so. 

Investors rely on financial reporting in order to hold management to account: to assess the delivery of the business model and the creation of long-term shareholder value.  Providing information for this stewardship must be regarded as a central objective, rather than secondary to information for investment decisions.  

By describing prudence merely as taking a cautious approach to accounting, the IASB has missed the point: prudence requires a greater readiness to recognise losses than profits.   It is particularly odd that the IASB acknowledges that this is reflected in current accounting standards, but has omitted it from its draft Framework.”

The FRC’s response also suggests that a more fundamental analysis than that provided in the Exposure Draft is required of the reporting of financial performance and the measurement of assets and liabilities.

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.