INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF UGANDA

Transcription

1 INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF UGANDA 1 December 2015 International Accounting Standards Board 30 Cannon Street London EC4M 6XH United Kingdom Dear Sir/Madam, ICPAU SUBMISSION ON ED/2015/3 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING In response to your request for comments on ED/2015/3 Conceptual Framework for Financial Reporting, attached is our comment letter. This comment letter results from deliberations and comments by members of ICPAU. We thank you for the opportunity to provide comments on this document. Please do not hesitate to contact us should you wish to discuss any of our comments. Yours faithfully, CPA Mark Omona TECHNICAL MANAGER Plot 42 Bukoto Street Kololo, P.O. Box 12464, Kampala, UGANDA Tel: , Fax: technical@icpau.co.ug. Website:

2 COMMENTS ON ED/2015/3 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING GENERAL COMMENTS We strongly support the IASB in its goal to update and develop a Conceptual Framework for Financial Reporting that provides the conceptual basis for the development of IFRSs. We believe that the IASB has progressed sufficiently in meeting this goal in the proposed Conceptual Framework. We suggest the IASB should develop and implement a process to deal with inconsistencies in some of its current IFRSs, once the Conceptual Framework is issued. SPECIFIC COMMENTS Question 1 Proposed changes to Chapters 1 and 2 Do you support the proposals: (a) to give more prominence, within the objective of financial reporting, to the importance of providing information needed to assess management s stewardship of the entity s resources; (b) to reintroduce an explicit reference to the notion of prudence (described as caution when making judgements under conditions of uncertainty) and to state that prudence is important in achieving neutrality; (c) to state explicitly that a faithful representation represents the substance of an economic phenomenon instead of merely representing its legal form; (d) to clarify that measurement uncertainty is one factor that can make financial information less relevant, and that there is a trade-off between the level of measurement uncertainty and other factors that make information relevant; and (e) to continue to identify relevance and faithful representation as the two fundamental qualitative characteristics of useful financial information? a) We agree with the Board s proposal to give more prominence to management s stewardship of the entity s resources because it is a vital aspect in business management and sustainable development as it improves owners confidence in management and enables adequate accountability by management to the general stakeholder ship in order to avoid negative surprises. b) Whereas the notion of prudence appears to be well illustrated by the existing notion on faithful representation since financial information would be faithfully presented if that information is complete, neutral and free from any material error. There is broad support for reintroduction of prudence in the conceptual framework. c) We agree that the framework should explicitly define faithful representation as suggested in order to draw a clearer point of reference for organisations. d) It is true that if an estimate is too uncertain, it might not provide relevant information. We operate in different worlds with scores of different operations. Predictability of financial value takes a new trend with the ever changing environs. Hence a need to clarify on the measurement of uncertain and its impact of financial information alerts the general stake holders of any such divergence once they occur. e) Because the two sum up the qualitative characteristics. A further split would result into repetitions and redundant characteristics. General

3 We agree that the proposals outlined in above provide additional clarity around the prominence to these concepts. These changes are likely to reduce on the potential difference in interpretation and they are further likely to enhance the Conceptual Framework. Question 2 Description and boundary of a reporting entity Do you agree with: (a) the proposed description of a reporting entity in paragraphs ; and (b) the discussion of the boundary of a reporting entity in paragraphs ? The description of a reporting entity and the discussion of its boundary are exhaustive. With this provision at least a broader perspective of entities in any economy are covered. The framework may not specify which combinations of entities could prepare combined financial statements as this enumeration may not be exhaustive. Question 3 Definitions of elements Do you agree with the proposed definitions of elements (excluding issues relating to the distinction between liabilities and equity): (a) an asset, and the related definition of an economic resource; With the proposed inclusion for the definition of economic resource, the explanation for an asset is detailed enough and conforms with the business sense. (b) a liability; There may be a need to include the object on which the verb transfer as used in the definition settles. For the definition to read, A present obligation of the entity to transfer to another entity an economic resource as a result of past events. (c) equity; Whereas the definition may be okay, there may need to provide detailed guidance on how to distinguish liabilities from equity instruments. (d) income; and It encompasses both revenue and gains and clearly alienates any increases resulting from equity participants from being classified as income. (e) expenses? We are in agreement with the proposed definition. Question 4 Present obligation Do you agree with the proposed description of a present obligation and the proposed guidance to support that description? We agree with the proposed definition that a present obligation must have arisen from past events (i.e., the entity has enjoyed the economic benefits, or conducted the activities, that establish the extent of its obligation) and be practically unconditional (i.e., the entity has no

4 practical ability to avoid the transfer). With the presence of these two cardinal aspects of an obligation we believe the definition is sufficient. Question 5 Other guidance on the elements Do you have any comments on the proposed guidance? None. Do you believe that additional guidance is needed? None. Question 6 Recognition criteria Do you agree with the proposed approach to recognition? We agree with the Board s definition on the recognition criteria however, by allowing financial statement preparers more discretion and judgment in determining whether recognition is appropriate could inhibit the consistency and comparability of assets and liabilities across entities. Also, the criteria seems to ignore the element of future economic benefits, remember the predictive value of financial information under the qualitative characteristic of relevancy seems to draw importance on ability to validly estimate value, however, whether this value is expected to flow to the entity or not is a matter that may need clarity. Question 7 Derecognition Do you agree with the proposed discussion of derecognition? Since the existing IASB Conceptual Framework includes no guidance concerning derecognition introduction of derecognition as proposed would settle the inconsistencies in approaches to derecognition different entities had adopted. The proposed discussion as provided by IASB will serve to address that situation. Question 8 Measurement bases Has the IASB: (a) correctly identified the measurement bases that should be described in the Conceptual Framework? We agree with the Board that historical cost, fair value, and value in use are the most appropriate measurement bases to be included in the Conceptual Framework. (b) properly described the information provided by each of the measurement bases, and their advantages and disadvantages? We equally agree that the Exposure Draft has appropriately identified and described the information provided by each of the measurement bases. Question 9 Factors to consider when selecting a measurement basis Has the IASB correctly identified the factors to consider when selecting a measurement basis? We agree with the factors proposed. Question 10 More than one relevant measurement basis

5 Do you agree with the approach discussed in paragraphs and BC6.68? Once it is left open, different scenarios call for different options. 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? IASB should put in place a framework that makes management disclose as much relevant information in the financial statements which is easily understandable. Question 12 Description of the statement of profit or loss Do you support the proposed description of the statement of profit or loss? We agree with the Board s classification of income and expenses in the statement(s) of financial performance into either the statement of profit or loss or other comprehensive income.however, there might be need to define the term primary as used in paragraph Question 13 Reporting items of income or expenses in other comprehensive income Do you agree with the proposals on the use of other comprehensive income? Do you think that they provide useful guidance to the IASB for future decisions about the use of other comprehensive income? Question 14 Recycling Do you agree that the Conceptual Framework should include the rebuttable presumption described above? Question 15 Effects of the proposed changes to the Conceptual Framework Do you agree with the analysis in paragraphs BCE.1 BCE.31? Yes Should the IASB consider any other effects of the proposals in the Exposure Draft? None at the moment. Question 16 Business activities Do you agree with the proposed approach to business activities?

6 Question 17 Long-term investment Do you agree with the IASB s conclusions on long-term investment? Question 18 Other comments Do you have comments on any other aspect of the Exposure Draft? None at the moment.