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

  • Standards and Conceptual Framework Coherence
  • David B. Sutton, Carolyn J. Cordery, Tony van Zijl
  • Abacus, February 2015, Wiley
  • DOI: 10.1111/abac.12042

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

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.

Perspectives

Professor Carolyn J Cordery
Aston University

We advance the position that General Purpose Financial Reporting and the high-level properties of a Conceptual Framework for for-profit entities should be based on the purpose of financial reporting: to provide informative, relevant, and representationally faithful information to support investment decisions

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http://dx.doi.org/10.1111/abac.12042

The following have contributed to this page: Dr David Brent Sutton and Professor Carolyn J Cordery