Difference Between IASB And FASB conceptual framework

An-Najah NationalUniversity
College ofGraduate Studies
Masterof accounting program
Difference Between IASB And FASB
conceptual framework
BY:
Ro’ya Abd El-hafez

FASB Conceptual Framework IASB Conceptual Framework
Presentationconceptual
framework
The conceptual framework of
Concepts Statement No. 8
includes:
 Chapter 1, The Objective
of General Purpose
Financial Reporting
 Chapter 3, Qualitative
Characteristics of Useful
Financial Information
 Chapter 4, Elements of
Financial Statements
 Chapter 7, Presentation.
 Chapter 8, Notes to
Financial Statements
 Concepts Statement No.
7:Using Cash Flow
Information and Present
Value in Accounting
Measurements
 Concepts Statement No.
5 Recognition and
Measurement in Financial
Statements of Business
Enterprises
The International Accounting
Standards Board issued the
revised Conceptual Framework
for Financial Reporting in March
2018, which is a comprehensive
set of concepts for financial
reporting, which identify the
following:
 Chapter 1: —The
objective of financial
reporting
 Chapter 2: Qualitative
characteristics of useful
financial information
 Chapter 3: Financial
statements and the
reporting entity
 Chapter 4: The elements
of financial statements
 Chapter 5: Recognition
and derecognition
 Chapter 6:Measurement
 Chapter 7: Presentation
and Disclosure;
 Chapter 8: Concept of
capital and capital
maintenance.
Purpose of
Conceptual Framework
 The Conceptual Framework is
intended to set forth
fundamental concepts that
will be the basis for
development of financial
accounting and reporting
standards
 It is intended to serve the
public interest by providing
structure and direction to
financial accounting and
reporting to facilitate the
provision of unbiased
financial and related
information.
 To assist the Board to develop
IFRS Standards (Standards)
based on consistent concepts,
resulting in financial
information that is useful to
investors, lenders and other
creditors
 To assist preparers of
financial reports to develop
consistent accounting policies
for transactions or other events
when no Standard applies or a
Standard allows a choice of
accounting policies
 • To assist all parties to
understand and interpret
Standards
primary users Many existing and potential
investors, lenders, and other
creditors cannot require reporting
Users of financial reports are an
entity’s existing and potential
investors, lenders and other

entities to provide information
directly to them and must rely on
general purpose financial reports
for much of the financial
information they need.
Consequently, they are the
primary users to whom general
purpose financial reports are
directed
creditors. Those users must rely
on financial reports for much of
the financial information they
need.
Objectives of Financial
Reporting
The Board developed this
chapter jointly with the
International Accounting
Standards Board (IASB).
Consequently, this basis for
conclusions also includes some
references to the IASB’s
literature.
(1) The objective of general
purpose financial reporting1 is
to provide financial information
about the reporting entity that is
useful to existing and potential
creditors in making decisions
about providing resources to the
entity. Those decisions involve
buying, selling, or holding
equity and debt instruments and
providing or settling loans and
other forms of credit
(2) existing and potential
creditors need information to
help them assess the prospects for
future net cash inflows to an
entity.
(3) To assess an entity’s
prospects for future net cash
inflows, existing and potential
creditors need information about
the resources of the entity,
claims against the entity, and
how efficiently and effectively
the entity’s management and
• To provide financial information
that is useful to users in making
decisions relating to providing
resources to the entity
1) Users’ decisions involve
decisions about buying,
selling or holding equity or
debt instruments,
providing or settling loans
and other forms of credit,
voting, or otherwise
influencing management’s
actions
2) To make these decisions,
users assess prospects for
future net cash inflows to
the entity and
management’s
stewardship of the entity’s
economic resources
3) To make both these
assessments, users need
information about both the
entity’s economic
resources, claims against
the entity and changes in
those resources and claims
and how efficiently and
effectively management
has discharged its
responsibilities to use the
entity’s economic
resources

governing board have discharged
their responsibilities to use the
entity’s resources.
(4) provide information to help
existing and potential investors,
lenders, and other creditors to
estimate the value of the
reporting entity
Qualitative characteristics
of useful financial
information
Fundamental Qualitative
Characteristics
Relevance:
 Predictive value:
 confirmatory value
 Materiality
Faithful Representation:
 free from error and bias
 complete
 neutral
Enhancing Qualitative
Characteristics
 Comparability
 Verifiability
 Timeliness
 Understandability
Fundamental qualitative
characteristics
Relevance
 predictive value
 confirmatory value
 Materiality
Faithful representation
 complete
 neutral
 free from error
Enhancing qualitative
characteristics
 Comparability
 Verifiability
 Timeliness
 Understandability
The elements of financial
statements
There are two different types of
elements of financial statements,
which describe resources, claims
to, or interests in resources at a
specified date.
The first type includes assets,
liabilities, and equity
 Assets: A present right of an
entity to an economic benefit.
 Liabilities: A present
obligation of an entity to
transfer an economic benefit.
 Equities: The terms equity or
net assets represent the
residual interest in the assets
of an entity that remains after
deducting its liabilities.
 Asset: A present economic
resource controlled by the
entity as a result of past events
An economic resource is a
right that has the potential to
produce economic benefits.
 Liability: A present obligation
of the entity to transfer an
economic resource as a result
of past events An obligation is
a duty or responsibility that the
entity has no practical ability
to avoid.
 Equity: the residual interest in
the assets of the entity after
deducting all its liabilities is
unchanged. The Board’s
research project on Financial
Instruments with
Characteristics of Equity is

The second type of elements
describes the effects of
transactions and other events and
circumstances that affect an entity
during specified time intervals
(reporting periods). In a business
entity, this includes
comprehensive income and its
components:
 Revenues: Inflows or other
enhancements of assets of an
entity or settlements of its
liabilities (or a combination of
both) from delivering or
producing goods, rendering
services, or carrying out other
activities
 Gains: Increases in equity (net
assets) from transactions and
other events and
circumstances affecting an
entity except those that result
from revenues or investments
by owners
 Expenses: Outflows or other
using up of assets of an entity
or incurrences of its liabilities
(or a combination of both)
from delivering or producing
goods, rendering services, or
carrying out other activities.
 Losses: Decreases in equity
(net assets) from transactions
and other events and
circumstances affecting an
entity except those that result
from expenses or distributions
to owners.
 Investments by owners
 Distributions to owners.
exploring the distinction
between liabilities and equity.
 Income: Increases in assets, or
decreases in liabilities, that
result in increases in equity,
other than those relating to
contributions from holders of
equity claims
 Expenses: Decreases in
assets, or increases in
liabilities, that result in
decreases in equity, other than
those relating to distributions
to holders of equity claims
Recognition Recognition criteria:
Definitions. The item meets the
definition of an element of
financial statements. –
Measurability. It has a relevant
Recognition criteria
Relevant information about
assets, liabilities, equity, income,
expenses, Faithful
representation of those items.

attribute measurable with
sufficient reliability. –
Relevance. The information
about it is capable of making
a difference in user decisions.
Reliability. The information
is representationally faithful,
verifiable, and neutral.
Derecognition It fails to provide sufficient
guidance for initial recognition
and derecognition of assets and
liabilities.
The only mention is Control plays
an essential role in principles
guiding the derecognition of an
asset.
Derecognition: The removal of all
or part of a recognised asset or
liability from an entity’s statement
of financial position
Derecognition normally occurs
 For an asset
when the entity loses control of
all or part of the recognised asset
 For a liability
when the entity no longer has a
present obligation for all or part of
the recognised liability
constraint Cost-benefit
Materiality
Industry Practice
Conservatism
Cost constrains
Measurement Items currently reported in the
financial statements are
measured by different
attributes (for example,
historical cost, current
[replacement] cost, current
market value, net realizable value,
and present value of future cash
flows), depending on:
 The nature of the item and
 The relevance
 Reliability of the attribute
measured.
various measurement bases
 Historical cost
measurement bases
 Current value
measurement bases
current value
measurement bases
include:
 fair value
 value in use (for assets)
fulfilment value (for
liabilities)
 current cost

The Board expects use of
different attributes to continue.
Reliability. The information is
representationally faithful,
verifiable, and neutral.
The thesis reveals what is actually
happening with change from
faithful representation,
to reliability. In fact, there is an
attempt to alter what is wanted
from standard-setting in an
attempt to reinvent financial
accounting and
reporting. (Auditorium, 2017)
The factors to be considered
when selecting a measurement
basis are relevance
faithful representation,
Faithful representation
 information must
faithfully represent the
substance of what it
purports to represent
 a faithful representation is,
to the maximum extent
possible, complete, neutral
and free from error
 a faithful representation is
affected by level of
measurement uncertainty
and inconsistency.
Presentationand
disclosure
presentation decisions rely heavily
on the objective of financial
reporting and the qualitative
characteristics of useful
financial information
 The nature of the transaction is
what determines what is a gain
or a loss.
Chapter includes concepts on
presentation and disclosure and
guidance on including income and
expenses in the statement of profit
or loss and other comprehensive
income.
Effective communication of
information in financial
statements requires:
(a)focusing on presentation
and disclosure objectives and
principles rather than focusing on
rules;
(b)classifying information in a
manner that groups similar items
and separates dissimilar items; and
(c)aggregating information in
such a way that it is not obscured
either by unnecessary detail or by
excessive aggregation
 In principle, all income and
expenses are classified and
included in the statement of
profit or loss
 In exceptional circumstances,
the Board may decide to

exclude from the statement of
profit or loss income or
expenses arising from a
change in current value of an
asset or liability and include
those income and expenses in
other comprehensive income
Assumption: Economic Entity
Going concern
Monetary Unit
Periodicity
Accrual Basis (accounting) CH
1
Economic entity
Going concern
Stable Measuring Unit
Periodicity
Accrual Basis
Units of Constant Purchasing
Power
(Finance management, 2022)
Principle Measurement
Revenue recognition
expenses recognition
Full disclosure
Control also plays an essential
role in principles guiding the
derecognition of an asset
Conservatism
(AICPA, 1970)
Consistency CH8
Accounting principles are not
addressed in the new conceptual
framework.
However, they were compiled
from another references as a
result of indications that they are
in the conceptual framework
Matching: costs with income it
arises from the recognition of
changes in assets and liabilities.
Control
Revenue recognition and
realization
Measurement
Full disclosure
(shah, 2019)
Consistency
Reporting entity FASB board Meeting -
Wednesday June 15. 2022
The Board will consider whether
to begin initial deliberations for
“The Reporting Entity” phase of
the Conceptual Framework
project
The framework is not complete.
For example, matters of financial
presentation, derecognition,
disclosure, and the definition of a
reporting entity are not addressed.
Reporting entity
• an entity that is required, or
chooses, to prepare financial
statements
• not necessarily a legal entity—
could be a portion of an entity or
comprise more than one entity

Furthermore, certain aspects of the
framework that were addressed,
such as recognition and
measurement, remain incomplete.
(FASB, 2022)
CONCEPTS OF CAPITAL
AND CAPITAL
MAINTENANCE
wo major concepts of capital
maintenance exist, both of
which can be measured in units
of either money or constant
purchasing power—the financial
capital concept and the physical
capital concept (which is often
expressed in terms of
maintaining operating capability,
that is, maintaining the capacity
of an entity to provide a
constant supply of goods or
services). The financial capital
concept is the traditional view
and is generally the capital
maintenance concept in financial
reporting. Comprehensive income
as defined is a return on financial
capital.
The concepts of capital give rise to
the following concepts of capital
maintenance:
(a) Financial capital
maintenance. Under this
concept a profit is earned only
if the financial (or money)
amount of the net assets at the
end of the period exceeds the
financial (or money) amount of
net assets at the beginning of the
period, after excluding any
distributions to, and contributions
from, owners during the
period. Financial capital
maintenance can be measured in
either nominal monetary units or
units of constant purchasing
power.
(b) Physical capital
maintenance. Under this concept
a profit is earned only if the
physical productive capacity (or
operating capability) of the
entity (or the resources or funds
needed to achieve that capacity)
at the end of the period exceeds
the physical productive capacity at
the beginning of the period, after
excluding any distributions to,
and contributions from, owners
during the period.
Consolidatedfinancial
statements
Consolidated financial statements
tend to make a group of entities
appear to an outside observer to be
a single entity. Even though the
observer may be aware (and, in
most cases, should be aware) that
a more complex structure exists,
the potential effect on cash flows
to users may not be discernable
Consolidated financial statements
provide information about assets,
liabilities, equity, income and expenses
of both the parent and its subsidiaries
as a single reporting entity

unless the entity provides
additional information in notes
about its structure. In some
cases, an entity may include a
subsidiary or a variable interest
entity in consolidated financial
statements under conditions of
uncertainty. Information about
such decisions and the related
uncertainties is a candidate for
disclosure
However, the Financial
Accounting Standards Board
(FASB) defines consolidated
financial statements as the
financial reporting of an entity
consisting of a parent company
and its affiliated legal entities.
(insightsoftware, 2020)

Figure (1): FASB conceptual framework 2021
Source: Prepared by the student

Figure (2): IASB conceptual framework 2018
Source: Prepared by the student

Figure (3): IASB conceptual framework 2018
Source: (shah, 2019)

Figure (4): The Qualitative characteristics of accounting information 2018
References:
AICPA. (1970). Basic concepts and accounting principlesunderlying financial statements
of businessenterprises; Statement of the Accounting PrinciplesBoard 4;APB
Statement 4;. Retrieved from chrome-
extension://hmigninkgibhdckiaphhmbgcghochdjc/pdfjs/web/viewer.html?file=htt
ps%3A%2F%2Fegrove.olemiss.edu%2Fcgi%2Fviewcontent.cgi%3Farticle%3D1
171%26context%3Daicpa_assoc
Auditorium, K. B. (2017). The thesis reveals what is actually happening with this change.
In fact, there is an attempt to alter what is wanted from standard-setting in an
attempt to reinvent financial accounting and reporting. Retrieved from
www.nhh.no: https://www.nhh.no/en/nhh-bulletin/article-
archive/2017/december/from-reliability-to-faithful-representation/

FASB. (2022). THE CONCEPTUAL FRAMEWORK. Retrieved from www.fasb.org:
https://www.fasb.org/Page/PageContent?pageId=/the-conceptual-framework/the-
conceptual-framework.html&isPrintView=true
Finance management. (2022). International Financial Reporting Standards(IFRS).
Retrieved from efinancemanagement.com:
https://efinancemanagement.com/financial-accounting/ifrs#IFRS_Assumptions
insightsoftware. (2020). Reporting Requirements for Consolidated Financial Statements.
Retrieved from insightsoftware.com: https://insightsoftware.com/blog/reporting-
requirements-for-consolidated-financial-statements/
shah, h. (2019). www.studocu.com. Retrieved from The Conceptual Framework:
https://www.studocu.com/en-ca/document/the-university-of-western-
ontario/introduction-to-accounting-and-finance/the-conceptual-
framework/6500765?fbclid=IwAR15lcdp7O7RhoQjEFPhlXNbrO7xusHFRIrSY_
1bkniMKaAkX-zTfvvFHR4

Difference Between IASB And FASB conceptual framework

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