Presently, I’m watching the Financial Accounting Standards Board meeting (June 1, 2016). They are discussing their proposed Presentation chapter for the Exposure Draft of Concepts Statement No. 8.
In discussing their views about guidance that should be contained in a concept statement v. guidance that should be placed in an accounting standard, viewers can observe the challenge the Board faces when trying to establish fundamentals for guiding their standard-setting activity while accepting that even as they are deliberating those fundamental issues they must acknowledge that specific accounting standards/applied guidance is (or will be) inconsistent with their fundamental views.
For example, in discussing presentation, the Board is spending a lot of time trying to differentiate the conceptual notions of financial statement presentation, netting v. gross presentation, from the standards-level guidance on recognition and measurement.
To me the conceptual notions should be realized in the issued accounting standards. Of course, as various Board members point out, their issued financial standards sometimes contains guidance that is inconsistent with their conceptual framework.
I believe that the inconsistencies between the conceptual framework and various applied accounting standards is a major reason that the Board excludes the conceptual framework from their accounting hierarchy. In fact, Jim Leisenring makes an excellent observation that if the conceptual framework were part of the accounting choices allowed for preparers, where conflicts between the concepts and an accounting standard were present, the preparer would be able to make an accounting choice that they deem favorable for their desired result.
As pointed out by the Board, the International Accounting Standards Board includes their conceptual framework as part of the guidance that can be used by an accountant for addressing an economic transaction or event. Of course in their guidance, the IASB addresses concerns about accounting policy choice by placing their accounting standards and/or interpretations at the highest level of their accounting hierarchy. With respect to selection of accounting policies, paragraph 7 of International Accounting Standard 8, “Accounting Policies, Changes in Accounting Estimates, and Errors”, (“IAS 8”) states:
“When an IFRS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the IFRS.”
Then, in paragraphs 10-12, the IASB establishes other information that might be used to establish the accounting for an economic event or transaction. Those paragraphs start with the statement that “in the absence of an IFRS that specifically applies to a transaction, other event or condition, . . .” It is in those later paragraphs that the IASB allows use of “the the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework .”[footnote deleted]
For including its conceptual framework in its accounting hierarchy, the FASB could consider the IASB approach, as established in IAS 8.