A.J. Brouwer

Does the New Conceptual Framework Provide Adequate Concepts for Reporting Relevant Information about Performance

Abstract The basic question we raise in this paper is whether the 2013 Discussion Paper (DP 2013) on the Conceptual Framework provides adequate principles for reporting an entitys performance and what improvements could be made in the light of both user needs and evidence from academic literature. DP 2013 proposes to continue applying a balance sheet approach to financial accounting, whereby the income statement serves as a statement explaining changes in an entitys financial position. Performance is reduced to a discussion of possible approaches to defining other comprehensive income items and recycling. We conclude that the literature supports a more refined approach to communicating relevant attributes of performance, defining performance independently from assets and liabilities and taking into account various relevant disaggregations within profit or loss. We therefore propose a more balanced approach to financial reporting whereby the balance sheet and income statement are treated as equally important and the income statement gives more information about various relevant attributes of performance.

Will the changes proposed to the conceptual framework's definitions and recognition criteria provide a better basis for IASB standard setting?

In this paper we evaluate the International Accounting Standards Boards (IASB) efforts, in a discussion paper (DP) of 2013, to develop a new conceptual framework (CF) in the light of its stated ambition to establish a robust and consistent basis for future standard setting, thereby guiding standard setting decisions in complex and controversial areas. We investigate the impact of the definitions and recognition criteria for assets and liabilities in the existing CF and the DP. We conclude that, in areas where standards have diverged from the CF in the past, that is, not consistently applying probability thresholds, the DP supports the existing standards by removing those thresholds. Furthermore, the DP includes the more judgemental criteria of relevance and faithful representation to determine whether an item should be recognised as an asset or liability. This would justify those existing standards which currently do not recognise items that meet the (current and revised) definitions of asset or liability. Altogether, we conclude that the development of IFRSs will continue to be the outcome of professional debate, negotiation, consensus seeking and political influence. We therefore recommend that additional measures should be taken by the IASB to ensure coherence in the development and application of standards after implementation of a new CF.

Making Deferred Taxes Relevant

Abstract We analyse the conceptual problems in current accounting for deferred taxes and provide solutions derived from the literature in order to make International Financial Reporting Standards (IFRS) deferred tax numbers value-relevant. In our view, the empirical results concerning the value relevance of deferred taxes should find their way into the accounting standard-setting process. We conclude that deferred taxes should only be recognised for temporary differences that will result in real future tax payments and/or tax receipts. Temporary differences for which the tax cash flow has already occurred have valuation implications for the underlying asset or liability and should, therefore, be accounted for based on the valuation adjustment approach. Furthermore, we conclude that partial allocation should replace comprehensive allocation in order to better align deferred taxes with expected future cash flows and thus increase their relevance and understandability. Finally, we conclude that deferred tax balances should be measured on a discounted basis to address time value.

The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from the Netherlands

Abstract Dutch law (B2T9) is positive towards IFRS. IFRS may be used by all entities, there is a specific option for entities using IFRS in the consolidated financial statements to apply an IFRS-friendly version of B2T9 in its separate financial statements, and IFRS for SMEs can be used by non-listed and non-regulated companies in combination with B2T9. In the process of adoption of the 2013 EU Accounting Directive only limited references have been made to IFRS. This is not an indication of a reduced interest in IFRS, but is a result of limiting the changes of B2T9 to those that are necessary as a result of changes at the EU level. The Dutch Accounting Standards Board, issuing Dutch Accounting Standards (DAS), considers IFRS when developing and changing its standards. In addition to the IFRS option DAS often include one or more additional optional treatments that are considered suitable for non-listed companies. The Dutch regulatory authority AFM is also positive towards IFRS and even advocates elimination of non-IFRS options from Dutch GAAP as much as possible. The number of major differences between Dutch GAAP and IFRS is relatively limited, with only a few differences that cannot be avoided by an entity when preparing financial statements under Dutch GAAP.

One size doesn’t fit all

Internationaal is veel energie gestoken in de implementatie van een consistente set verslaggevingsregels (in ieder geval voor beursfondsen) en controlestandaarden. Desondanks blijven verschillen bestaan tussen de jaarrekeningen van ondernemingen en de uitvoering van de accountantscontrole. Cultuur, taal, nationale gebruiken en uitzonderingen blijven bijvoorbeeld zorgen voor verschillen. Daarnaast is er veel vrijwillige informatie waar de IFRSs niet op van toepassing zijn, waardoor ondernemingen hun eigen keuzes kunnen maken binnen algemene principes. In dit artikel wordt ingegaan op een aantal oorzaken voor verschillen en op de informatiewaarde van verschillen. Een bepaalde mate van harmonisatie kan positief zijn voor de vergelijkbaarheid van informatie, maar te ver doorgevoerde standaardisatie kan leiden tot verlies aan informatiewaarde en is derhalve niet wenselijk.