A Converged Conceptual Framework Essay

In October 2004, the FASB and IASB added to their agendas a joint project to develop an improved, common conceptual framework that builds on their existing frameworks (that is, the IASB’s Framework for the Preparation and Presentation of Financial Statements and the FASB’s Statements of Financial Accounting Concepts). Rationale for the Project and Project Objective A conceptual framework is basically a foundation serving as a guide to standard setters to help them establish the principles and concepts.

Therefore, the conceptual framework project is to develop an improved common conceptual framework that provides a foundation for developing future accounting standards. In this sense, the framework is essential to “fulfilling the Boards’ goal of developing standards that are principles-based, internally consistent, and internationally converged and that lead to financial reporting that provides the information capital providers need to make decisions in their capacity as capital providers”. FASB) Simply put, the Conceptual Framework project aims to “update and refine the existing concepts to reflect the changes in markets, business practices and the economic environment that have occurred in the two or more decades since the concepts were first developed. ” (IFRS) Therefore, the IASB and the US FASB (the boards) are undertaking the project jointly. Scope of the project As we expected, the new framework will deal with a wide range of topics and issues.

Moreover, it will build on the existing IASB and FASB frameworks– the IASB’s Framework for the Preparation and Presentation of Financial Statements and the FASB’s Statements of Financial Accounting Concepts– and consider developments subsequent to the issuance of those frameworks. In order to efficiently and effectively improve, complete, and converge the existing frameworks, the project will focus on changes in the environment since the two original frameworks were issued, as well as omissions in them.

In other words, instead of reconsidering all components of the framework (which is unnecessary as many aspects of the frameworks work very well), the Boards will focus on problematic conceptual issues that occur frequently in standard-setting and new issues. Initially the project will focus on concepts applicable to business entities in the private sector. Later, consideration will be extended to the application of those concepts to other sectors, beginning with non-profit organizations in the private sector. (FASB) Phases and Completion

The Boards are conducting this joint project in eight phases. For each phase, the Boards plan to issue documents that will seek comments from the public on the Boards’ tentative decisions. The Boards will consider these comments and redeliberate their tentative decisions. While the Boards plan to seek comments on each phase separately, they have not precluded seeking comments on several phases concurrently. (FASB) Phases A, B, C and D of the project are currently active. The current status of each phase is briefly shown in the following table: (Deloitte. IAS Plus) A.

Objectives and qualitative characteristics * Final Phase A chapters of Framework published 28 September 2010 B. Definitions of elements, recognition and derecognition * Deliberations not expected until after June 2011 C. Measurement * Deliberations not expected until after June 2011 D. Reporting entity concept * Deliberations to continue second half of 2011 E. Boundaries of financial reporting, and Presentation and Disclosure * Discussion paper on Phase E – timing not yet determined F. Purpose and status of the framework * Discussion paper on Phase F – timing not yet determined G.

Application to the framework to not-for-profit entities * Discussion paper on Phase G – timing not yet determined H. Remaining Issues, if any At the October 2006 joint IASB/FASB meeting, the boards agreed that “each board, within the context of its current GAAP hierarchy, will finalize the common framework as parts (chapters) are completed, and noted that later parts may include consequential amendments to earlier parts”. (IFRS) The boards haven’t come up with the decision of how to finalize the joint framework. The boards noted that the finalization may need to be readdressed hen they discuss the placement of the framework within the IASB and FASB hierarchies. So far, only phase A has been completed. Agenda for the discussion papers of Phase E, F and G have not been determined yet.

IFRS said in its Conceptual Framework Project that “timetables for two inactive phases (E and F) are to be established”. Discussions Bullen and Crook in their article, Revisiting the Concepts (2005), discussed the nature of the new conceptual Framework project. They said the FASB and IASB began this project to “revisit their conceptual frameworks for financial accounting and reporting. In other words, the project will result in an improved, complete and consistent conceptual framework as a new guidance for future standard-setting. Furthermore, as we’ve discussed in ACCT 598 class, principles-based standards are needed to push the entire accounting system toward a principles-based approach that will “improve the quality and transparency of financial accounting and affect development of future standards”. (FASB, 2002) Apparently, principles-based standards require a sound conceptual framework as a foundation for standard-setting.

In terms of it is a joint project, there are benefits for the project conducted by the FASB and IASB. First of all, a common conceptual framework will facilitate the convergence of International Financial Reporting Standards (IFRSs) and US generally accepted accounting practices (GAAP). A converged framework will provide common guidelines and mitigate conflicts during the convergence of IFRSs and GAAP. Second, the joint project brings updates, refinements, revisions, and improvements upon existing IASB and FASB frameworks, since the new conceptual framework builds on both of them.

The news read: “The IASB has revised portions of its framework, while the FASB has issued ‘Concepts Statement 8’ to replace ‘Concepts Statements 1 and 2’. ” (FASB, 2010) In addition, a converged conceptual framework, along with the convergence of IFRSs and GAAP will have a significant and long-term impact on an international accounting environment. The new conceptual framework will provide greater consistency in global standard setting and serve as a sound foundation for worldwide financial information preparers and users.

To sum up, a converged conceptual framework focusing on environmental changes and omissions from existing frameworks will improve the existing frameworks and form a sound foundation for improvements of standard-setting internationally.


Deloitte. IAS Plus, IASB agenda project, http://www. iasplus. com/agenda/agenda. htm#active FASB, FASB Issues Proposal for a Principles-Based Approach to U. S. Accounting Standard Setting, October 2002, http://www. fasb. org/jsp/FASB/FASBContent_C/NewsPage&cid=900000004165 FASB, New release 09/28/10: IASB and US FASB complete first stage of conceptual framework, September 2010, http://www. asb. org/cs/ContentServer? c=FASBContent_C&pagename=FASB/FASBContent_C/NewsPage&cid=1176157497474 FASB, Conceptual Framework—Joint Project of the IASB and FASB, fasb. org, http://www. fasb. org/cs/ContentServer? c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&cid=900000011090 Halsey Bullen & Kimberley Crook, ‘Revisiting the concepts: A new conceptual framework project’, May 2005, FASB and IASB, http://www. fasb. org/project/communications_paper. pdf IFRS, Conceptual framework, ifrs. org, http://www. ifrs. org/Current+Projects/IASB+Projects/Conceptual+Framework/Conceptual+Framework. htm