IASB restores concept of prudence to financial reporting

IASB restores concept of prudence to financial reporting

IASB bows to pressure and reintroduces an explicit reference to prudence in its conceptual framework

THE concept of prudence will be reintroduced to financial reporting as part long-awaited revisions to the framework that underpins the setting of global accounting rules.

Bowing to pressure from investors, politicians and members of the profession, the IASB has published plans to reintroduce an explicit reference to prudence, explaining clearly what it means.

The global standard-setter is calling for feedback on a number of changes to the conceptual underpinning of financial reporting, which include placing more emphasis on the importance of providing information needed for investors to assess management’s stewardship.

Among the enhancements to the conceptual framework, the IASB has proposed a new chapter on measurement, confirmed that the statement of profit or loss is the primary source of information about a company’s performance, and added guidance on when income and expenses could be reported outside the statement of profit or loss, in other comprehensive income (OCI); and refined the definitions of the basic building blocks of financial statements-assets, liabilities, equity, income and expenses.

“Two particularly important areas of the proposals published today are the clarification of the key role of profit or loss as an indicator of a company’s financial performance, and the chapter that describes the information provided by historical cost and current value measurements,” said Hans Hoogervorst (pictured), chair of the IASB.

Commenting on the exposure draft, Nigel Sleigh-Johnson, head of ICAEW’s Financial Reporting Faculty, said IASB must not let the real issues of the conceptual framework be overshadowed by noise around prudence.

“It is critical that fundamental issues – the nuts and bolts of financial reporting – are not overshadowed by more controversial areas that have so far dominated the debate. For example, a lot of attention will, understandably, be directed towards areas like prudence, stewardship and reliability,” he said.

“The discussion should now be wider. Topics like definitions of assets and liabilities, bases of measurement, recognition and derecognition criteria, and how to decide what goes into the income statement may not always take centre-stage. However, they are the very foundation for what goes into the financial reporting standards that drive transparency for investors.”

The deadline for commenting on the exposure draft is 26 October 2015.

Whitepaper

The Future of Finance is in the CFO's Hands

Business The Future of Finance is in the CFO's Hands

6m
Save a Week a Month Consolidating Accounts

Accounting Software Save a Week a Month Consolidating Accounts

7m
Mitigating Risk Through Internal Control

Legal Mitigating Risk Through Internal Control

7m
Could tax season have run more efficiently?

Corporate Tax Could tax season have run more efficiently?

8m

Related Articles

IFRS to bring significant changes for lessee accounting

Accounting Standards IFRS to bring significant changes for lessee accounting

3m Dom Longley, lead consultant for accounting solutions for Smith & Williamson
Sustainable cost accounting - The reality of the climate crisis requires nothing less

Accounting Standards Sustainable cost accounting - The reality of the climate crisis requires nothing less

4m Richard Murphy
IFRS 17 is an “opportunity” for accountants

Accounting Standards IFRS 17 is an “opportunity” for accountants

4m Tom Lemmon
Moody’s Analytics enhances accounting and reinsurance capabilities of RiskIntegrity IFRS 17 solution

Accounting Standards Moody’s Analytics enhances accounting and reinsurance capabilities of RiskIntegrity IFRS 17 solution

4m Tom Lemmon
What will IFRS 16 mean for 2019’s reporting season?

Accounting Standards What will IFRS 16 mean for 2019’s reporting season?

5m John Kuett, Vice president of European Lease Accounting at Lease Accelerator
Top 10 lessons learnt on the road to FASB/IASB lease accounting compliance

Accounting Standards Top 10 lessons learnt on the road to FASB/IASB lease accounting compliance

6m Sponsored | Trimble
How to Manage FASB & IFRS Lease Accounting in a Sea of Changing Standards

Accounting Standards How to Manage FASB & IFRS Lease Accounting in a Sea of Changing Standards

8m Craig Gillespie
New IASB/FASB lease accounting standards: what happens after the dust settles?

Accounting Standards New IASB/FASB lease accounting standards: what happens after the dust settles?

11m Craig Gillespie