Feathers in the wind

Over the last week or so I have been teaching classes about the Conceptual Framework that underpins financial reporting. I am not sure that my students find its details as fascinating as I do. Perhaps its one of those topics that you develop a taste for? Anyway it always gets me thinking.

The version of the conceptual framework I have been teaching is a work in progress. The original Framework was published in 1989 and the International Accounting Standards Board (IASB) have been working on updating it for a number of years. At the moment there is a new version of the ‘Objectives of Financial Statements’ and the ‘Qualitative Characteristics of Financial Statements’.

In both versions the objective of financial statements is to help users make economic decisions. The thing that has changed between the 1989 version and the current version is that users of financial statements are now more narrowly defined. Users used to ‘include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the public’ (IASB, 2010, pB1714, para 9). Since the changes they are now limited to ‘existing and potential investors, lenders and other creditors’ (IASB, 2011, p77, para OB2).

So employees, suppliers, customers, governments and their agencies and the public have disappeared.

The thoughts that have occurred to me from this change are that it marks the influence of the FASB the American standards setting body for financial reporting. One of the long term goals of the IASB is to converge international financial reporting with financial reporting in the US (US GAAP).

The users of financial statements identified, the providers or owners of capital, fit a pristine capitalist view of business, whereas the old list of potential users allowed the scope to view businesses as a social enterprise. While it probably didn’t accommodate more radical perspectives, it left some room for the idea of the social contract.

On the face of it this narrowing of the defined audience for financial statements seems at odds with the increasing awareness within the business community of the importance of sustainability and the need to be socially responsible. However perhaps it is not as bad as I first feared. Financial Statements used to be the only information published on issues of stewardship. Now companies are encouraged (by the GRI for instance) to publish on wider stewardship issues. There is a growing call for integrated reporting (see the IIRC discussion paper). Perhaps in that context it is not unreasonable to be more focussed in what the financial reporting is trying to achieve. Nonetheless I still have a certain level of disquiet about what looks like a retrograde step.


IASB, (2010), International Financial Reporting Standards; Part B the accompanying documents, IASB, London
IASB, (2011), International Financial Reporting Standards; Consolidated without early application, IASB, London


GAAP: Generally Accepted Accounting Practice
GRI: Global Reporting Initiative
FASB: Financial Accounting Standards Board
IFRS: International Financial Reporting Standards
IIRC: International Integrated Reporting Council


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