Conceptual Framework should be user focused and aspirational

Our submission on the IASB's conceptual framework review (DP/2013/1)
was largely supportive, but we expressed concerns about the section dealing with profit and other comprehensive income (OCI).  The section on Profit and OCI reads somewhat as if the drafters have tried to back-fill a conceptual foundation for standards that have already been written by justifying a variety of accounting treatments, whereas in our view a conceptual framework should be a clear, succinct aspirational framework for standard setters to work towards as they prepare a consistent, cohesive suite of standards.  It may be that a new standard is not fully in line with the conceptual framework for political or cost/benefit reasons, but the framework should nevertheless be set as a goal or aspiration.

As we say in our detailed views it is vital that the IASB should articulate a conceptual basis for the separate existence of Profit and OCI because OCI has been used in a number of recent standards. If, for example, Profit is intended to reflect only realised items, this needs to be explicitly stated at the conceptual level and the concept of “realised” defined within an accrual accounting framework.  This would then enable a conceptual basis to be expressed for recycling.  In the absence of a robust definition of Profit, recycling has no place in a conceptual framework.

In summary, our views are that:

1. The framework should be aspirational.
2. The needs of users are paramount.  Without users financial reporting has no purpose.  The question “Who are the users and what information do they need?” should be at the forefront of every standard setting project.
3. Regardless of the balance sheet focused work that has been done at a conceptual level, preparers and users still want information on “profit” and appear to perceive it as something other than the difference between two balance sheets.  The notion of profit should be explored and explicitly incorporated into the framework.  This notion of there being multiple profits is inherent in terms such as “underlying profit” and even EBIT and informs the whole of the OCI debate.
4. The framework should be transaction neutral and capable of application across sectors and types of entity.  Although the not for profit sector is outside the IASB’s mandate, the credibility of financial reporting is enhanced by consistency between sectors.