Framework-based Approach to Teaching Principle-based Accounting Standards

Abstract

To a large extent, financial statements that conform to International Financial Reporting Standards (IFRSs) are based on estimates, judgements and models rather than exact depictions. Because the International Accounting Standards Board (IASB) Conceptual Framework establishes the concepts that underlie those estimates, judgements and models, it provides a basis for the use of judgement in resolving accounting issues. Because the objective of the Conceptual Framework is to facilitate the consistent and logical formulation of IFRSs, adopting a Framework-based approach to teaching IFRSs provides students with a cohesive understanding of IFRSs by relating the requirements in IFRSs to the objective of IFRS financial information and the concepts that underlie IFRSs and inform its development. That understanding should enhance the ability of students to exercise the judgements that are necessary to apply IFRSs and it should better prepare them to continuously update their IFRS knowledge and competencies in the context of life-long learning.

Keywords:

• Conceptual Framework
• IFRS teaching
• International Financial Reporting Standards
• principle-based standards

Acknowledgements

In developing the ideas in this paper the author has benefited from comments from those who attended a series of sessions on teaching principle-based accounting standards held in Amsterdam, Bucharest, Milan, New York, Sao Paulo, Singapore, Tokyo, Toronto and Zurich. The sessions were organized by the IFRS Foundation, and some were arranged jointly with others including the International Association for Accounting Education and Research (IAAER) and the International Accounting Section (IAS) of the American Accounting Association (AAA). In November 2010 an earlier draft of this paper formed the basis for discussion of one of the ‘pillars’ at the University of Toronto and CA Rotman Centre for Innovation in Accounting Education, academic symposium Leveraging Change: The New Pillars of Accounting Education. That earlier version of the paper is to be published in a bound volume of the papers discussed at that symposium.

Notes

In 2010 the IASC Foundation became the IFRS Foundation (IFRS Foundation, 2010d, section 1).

When setting IFRSs the IASB assesses whether the benefits of reporting particular information are likely to justify the costs incurred to provide that information (IFRS Foundation, 2010b, paragraph QC38).

See the part of the introduction and invitation to comment on the exposure draft Leases that sets out why the IASB and the FASB published that exposure draft (IFRS Foundation, 2010e).

For information about the approval required to publish an IFRS see section 36 of the IFRS Foundation Constitution (January 2010) (IFRS Foundation, 2010d).

See the introduction to the Conceptual Framework (IFRS Foundation, 2010b).

Proposed IFRS requirements take the form of IASB exposure drafts. Other more tentative views that form part of the IASB's due process for developing IFRS requirements are presented in IASB discussion papers.

Financial information has predictive value if it can be used as an input to processes employed by users to predict future outcomes (IFRS Foundation, 2010b, paragraph QC8).

Financial information has confirmatory value if it provides feedback (confirms or changes) about previous evaluations (IFRS Foundation, 2010b, paragraph QC9).

See paragraph QC7 of the Conceptual Framework (IFRS Foundation, 2010b).

See paragraph QC12 of the Conceptual Framework (IFRS Foundation, 2010b).

Economic phenomena are information about the reporting entity's economic resources, claims against the reporting entity and the effects of transactions and other events and conditions that change those resources and claims (IFRS Foundation, 2010b, paragraph QC2).