to be the subject of a standards level project, but when those principles are established they need to be incorporated into the CF. No further comments. Question 6—Recognition criteria Do you agree with the proposed approach to recognition? Why or why not? If you do not agree, what changes do you suggest and why? We agree with the approach to recognition of setting out criteria to consider without determining the balance between them. In applying these criteria the IASB will need to be careful to try and minimise inconsistencies between the standards that might result. We have noted above our concern that the possibility in some cases of asymmetrical recognition of assets compared to liabilities, and of gains compared to losses needs to be reflected in the discussion of recognition criteria. Paragraph 5.13(a) refers to the existence of assets and its separability from goodwill. Arguably this separability should therefore be part of the definition of an asset. Question 7—Derecognition Do you agree with the proposed discussion of derecognition? Why or why not? If you do not agree, what changes do you suggest and why? We agree with the discussion of derecognition. Currently some standards employ a control model and others (such as for financial instruments) a risk and reward approach. Both are included as 5.25 and 5.29 respectively. Question 8—Measurement bases Has the IASB: (a) correctly identified the measurement bases that should be described in the Conceptual Framework? If not, which measurement bases would you include and why? (b) properly described the information provided by each of the measurement bases, and their advantages and disadvantages? If not, how would you describe the information provided by each measurement basis, and its advantages and disadvantages? We agree that the two main categories of measurement bases are historical cost and current values. However the implication of this for measurement
bases that do not appear to fit under either of these is not clear, for example the equity basis of measurement (for associates and JVs). The lack of reference to joint control or significant influence noted in response to Q2 above makes this of greater importance. 6.23 The discussion could make clearer that fair value reflects future cash flows except for transaction costs. The CF might note that sometimes transaction costs are not separated but are reflected in the bid-offer spread. Question 9—Factors to consider when selecting a measurement basis Has the IASB correctly identified the factors to consider when selecting a measurement basis? If not, what factors would you consider and why? We agree with the factors identified, especially the two in paragraph 6.54. The CF could spell out the implications of these, in terms of which business models are more likely to lead to current values and which more likely to lead to cost-based measures. Question 10—More than one relevant measurement basis Do you agree with the approach discussed in paragraphs 6.74–6.77 and BC6.68? Why or why not? There may be cases where, using the criteria of relevant information, the profit or loss treatment might be best on a historical cost basis and yet the balance sheet should incorporate a current value. However such treatments do go against the basic model of the connection of income statements and balance sheets and can add significant complexity (see our comments in response to Q13 and Q14). So such solutions should not be readily employed. Question 11—Objective and scope of financial statements and communication Do you have any comments on the discussion of the objective and scope of financial statements, and on the use of presentation and disclosure as communication tools? We agree with what is included in these sections. . Question 12—Description of the statement of profit or loss Do you support the proposed description of the statement of profit or loss? Why or why not?
Question 17—Long-term investment Do you agree with the IASB’s conclusions on long-term investment? Why or why not? We agree with the conclusions of the IASB that long term investors can be served by the current formulation of the CF. Question 18—Other comments Do you have comments on any other aspect of the Exposure Draft? Please indicate the specific paragraphs or group of paragraphs to which your comments relate (if applicable). As previously noted, the IASB is not requesting comments on all parts of Chapters 1 and 2, on how to distinguish liabilities from equity claims (see Chapter 4) or on Chapter 8. In our view the inclusion in 1.6 of the other sorts of information that might be needed should be improved. There has been a general reassessment of the importance of non-financial information in corporate reporting to which the CF should respond. The Integrated Reporting is one such indication of the wider perspective that is needed. IASB’s own Management Commentary guidance points to different factors than are currently included in 1.6. Chapter 8 introduces the concept of capital maintenance adjustments, however these are not included among the elements discussed in Chapter 4 nor appear on the diagram at 5.6 for example. In 8.4 such adjustments are regarded as expenses, but in 8.8, 8.9 and 8.10 they seem to be specifically excluded from being expenses. They therefore undermine the main model. Furthermore the non-application in IFRS of the concepts of capital maintenance needs to be made clearer than it is in 8.9. Capital maintenance adjustments as far as we are aware are not being specifically required in IFRS at present. For both these reasons we think the whole of Chapter 8 would be better removed from the CF for now and reconsidered.