International Accounting Standards Board seeks comment on proposed accounting standards

The International Accounting Standards Board (IASB) and U.S. Financial Accounting Standards Board (FASB) have published consultative documents seeking public comment on a joint project to improve future accounting standards.
Each document is more than 40 pages and is available at www.iasb.org.
The first document, referred to as the ‘Exposure Draft,’ defines the objectives of financial reporting and proposes the following definition: “financial reporting is to provide financial information that is useful to present and potential equity investors, lenders and other creditors in making decisions in their capacity as capital providers.”
The board is seeking comment on this definition.
In addition, the board is seeking comment on a refined description of what constitutes ‘faithful representation.’
“To be useful in financial reporting, information must be a faithful representation of the economic phenomena that it purports to represent,” the consultation document notes. “Faithful representation is attained when the depiction of an economic phenomenon is complete, neutral and free from material error.
“Financial information that faithfully represents an economic phenomenon depicts the economic substance of the underlying transaction, event or circumstance, which is not always the same as its legal form.”
The second document gives the boards’ preliminary views on what constitutes a ‘reporting entity.’ Of particular note, the boards’ definition of a financial reporting entity is broad and not limited to business activities structured as legal entities. “A reporting entity is a circumscribed area of business activity of interest to present and potential equity investors, lenders and other capital providers.”
Under this definition, examples of reporting entities might include a sole proprietorship, corporation, trust, partnership, association or a group of entities.
Also of note is that a “controlling entity” approach would be used to determine the composition of a group reporting entity for accounting purposes.
That definition would not only capture whether one entity exerted power over another in the group, but also whether the entity can benefit from that power (or reduce the incidence of losses).
Comments on the drafts should be submitted to the Financial Accounting Standards Board prior to Sept. 29, 2008.