The Purpose of Financial Reporting: The Case for Coherence in the Conceptual Framework and Standards

What is it about?

We argue that the broad socio-economic environment should determine the primary purpose of General Purpose Financial Reporting and the high-level properties of a Conceptual Framework. Theoretical coherence is necessary. This approach implies that standards are subordinate to Conceptual Framework principles. The paper argues for a default presumption in favour of Fair Value Accounting, a retreat from the asset/ liability approach, and a re-casting of the income statement to focus on operational flow

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Why is it important?

This IASB's conceptual framework project is currently discussing what the basis for financial reporting should be (decision-usefulness or stewardship.accountability). We argue that a single objective will bring more coherence, although the political process may not allow this.

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