Support for updating concepts for latest IASB thinking and filling in gaps 3 The AASB supports some of the IASB’s preliminary views regarding updating the IASB Conceptual Framework to reflect the IASB’s latest thinking on conceptual issues, and some of the IASB’s preliminary views on how to fill in gaps in the existing Conceptual Framework. For example, it supports the IASB’s preliminary views that: (a) the definitions of an ‘asset’ and a ‘liability’ should be amended to focus on economic resources and obligations, rather than inflows and outflows (respectively) of economic benefits that each economic resource or obligation may generate; (b) an ‘economic resource’ should be defined as “a right, or other source of value, that is capable of producing economic benefits” (paragraph 3.4 of the DP), which would confirm a shift away from traditional notions of accounting for physical objects and toward accounting for different rights composing economic resources. This shift should be particularly helpful over time in addressing derecognition of components of assets (e.g. assets); (c) the Conceptual Framework should not retain the recognition criterion that an asset or a liability must have a cost or value that can be measured with reliability; (d) the Conceptual Framework should include derecognition criteria for assets and liabilities, and that these criteria should be neutral (i.e. symmetrical with the recognition criteria); and (e) a ‘strict obligation approach’ should be taken to distinguishing liabilities and equity, including classifying as liabilities only present obligations to transfer economic resources. 4 The AASB also supports the IASB’s intention not to fundamentally reconsider Chapters 1 and 3 of the Conceptual Framework for the reasons given in paragraph 9.2 of the DP. In particular, the AASB: (a) considers it would be unnecessary and inappropriate to amend Chapter 1 to give greater emphasis to stewardship; (b) considers it would be inappropriate to reintroduce the qualitative characteristic of reliability to Chapter 3; and (c) would strongly disagree with reintroducing the qualitative characteristic of prudence to Chapter 3. Serious concerns financial
B146 The AASB’s concerns in paragraphs B142 – B143 above are not allayed by the proposal in paragraph 9.50 of the DP to retain the existing Conceptual Framework’s discussion of concepts of capital maintenance largely unchanged until any project on accounting for high inflation indicates a need for change. This is because the discussion of concepts of capital maintenance in the existing Conceptual Framework is descriptive and does not indicate which concept of capital maintenance is conceptually ideal. B147 As implied by paragraph B142(b) above and illustrated in the example in paragraphs B144 – B145 above, a corollary of addressing in the Conceptual Framework the concept of capital maintenance (concept of economic income) is addressing first the overarching issue of the concept of capital (concept of wealth). B148 Another reason there is no need to defer consideration of concepts of capital and capital maintenance is the extensive literature that exists regarding these concepts. Other Comments B149 The AASB notes that the discussion of some topics in the DP seems unduly restrictive, by focusing on particular discrete ‘Views’ or ‘Approaches’ without first discussing the spectrum of possible views within which those ‘Views’ or ‘Approaches’ belong. For example: (a) the discussion of OCI in Section 8 of the DP focuses on the components of particular ‘Approaches’, apparently without seeking to identify overarching concepts; and (b) the discussion of subsequent measurement of assets and liabilities in paragraphs 6.73 – 6.109 of the DP focuses on approaches that do not consider concepts of wealth (or capital), although there is a considerable body of accounting literature on those concepts, as noted in paragraph B148 above.
C4 The Table is not intended to be comprehensive and it identifies particular measurement approaches in IFRSs and IASB ED/2013/7 Insurance Contracts only in broad terms for illustrative purposes. TABLE Class of assets or liabilities IFRS subsequent measurement Strict application of ‘operating capability’ concept of wealth Possible standards-level modified operating capability model (main modifications in italics) Inventories IAS 2 Lower of cost and net realisable value Lower of current cost and net realisable value Lower of historical cost and net realisable value, for inventories that turn over quickly; or Lower of current cost and net realisable value Plant and equipment Intangible assets IAS 16 & IAS 38 Cost less accumulated depreciation/amortisation and accumulated impairment losses; or Current cost less accumulated depreciation/ amortisation and accumulated impairment losses Historical cost less accumulated depreciation/amortisation and accumulated impairment losses; or Fair value less accumulated depreciation/amortisation and accumulated impairment losses (which could be a current replacement cost under IFRS 13) Current cost less accumulated depreciation/amortisation and accumulated impairment losses Land (PP&E) IAS 16 Cost less accumulated impairment losses; or Current cost less accumulated impairment losses Historical cost less accumulated impairment losses; or Fair value less accumulated and impairment losses Current cost less accumulated impairment losses Biological assets IAS 41 Fair value less costs to sell Current cost less accumulated impairment losses Current cost less accumulated impairment losses Investment properties IAS 40 Cost less accumulated depreciation and accumulated impairment losses; or Current cost less accumulated depreciation and accumulated impairment losses Historical cost less accumulated amortisation and accumulated impairment losses; or