Submission to the IASB - Conceptual Framework for Financial Reporting

23 September 2008

Sir David Tweedie
Chairman
International Accounting Standards Board
30 Cannon Street
London EC 4M 6XH
UNITED KINGDOM

Dear Sir David

Conceptual Framework for Financial Reporting

The Group of 100 (G100) is an organization of chief financial officers from Australia’s largest business enterprises with a purpose of advancing Australia’s financial competitiveness. The G100 is pleased to provide comments on the Exposure Draft “An improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information”.

The objective of financial reporting

1.	The boards decided that an entity’s financial reporting should be prepared from the perspective of the entity (entity perspective) rather than the perspective of its owners or a particular class of owners (proprietary perspective). (See OB5-OB8 and BC1.11-BC1.17). Do you agree with the boards’ conclusion and the basis for it? If not, why? The G100 agrees with the emphasis on the entity perspective in preference to the proprietary perspective. However, we consider that there is an apparent inconsistency between the adoption of the entity perspective and the emphasis in another part of the conceptual framework project which seeks to distinguish between equity interests and liabilities. If the entity approach is adopted the distinction becomes less relevant and the relative ranking of claimants is probably of more relevance to users.
2.	The boards decided to identify present and potential capital providers as the primary user group for general purpose financial reporting. (See OB5-OB8 and BC1.18-BC1.24). Do you agree with the boards’ conclusion and the basis for it? If not, why? The G100 agrees that the primary user group is capital providers and potential capital providers. However, we consider that the term ‘capital providers’ is used too broadly as this term is generally used to refer to those who are providing financing/funding to the entity and would not normally include trade creditors, employees etc.
3.	The boards decided to identify present and potential capital providers as the primary user group for general purpose financial reporting. (See OB5-OB8 and BC1.18-BC1.24). Do you agree with the boards’ conclusion and the basis for it? If not, why? The G100 agrees that the primary user group is capital providers and potential capital providers. However, we consider that the term ‘capital providers’ is used too broadly as this term is generally used to refer to those who are providing financing/funding to the entity and would not normally include trade creditors, employees etc.
4.	The boards decided to identify present and potential capital providers as the primary user group for general purpose financial reporting. (See OB5-OB8 and BC1.18-BC1.24). Do you agree with the boards’ conclusion and the basis for it? If not, why? The G100 agrees that the primary user group is capital providers and potential capital providers. However, we consider that the term ‘capital providers’ is used too broadly as this term is generally used to refer to those who are providing financing/funding to the entity and would not normally include trade creditors, employees etc. For example, certain groups of users may be seeking information and assurance about management’s stewardship of the resources entrusted to them and to make judgements about behaviours in relation to sustainability issues. In addition, it is unlikely that the information needs of those seeking socially responsible investments are satisfied by focussing on estimating future cash flows.

Qualitative characteristics and constraints of decision-useful financial reporting information

Providing financial reporting information is also subject to two pervasive constraints - materiality and cost. Are the distinctions - fundamental and enhancing qualitative characteristics and pervasive constraints of financial reporting – helpful in understanding how the qualitative characteristics interact and how they are applied in obtaining useful financial reporting information? If not, why?

The G100 considers that these distinctions are helpful to preparers and users and are an important component of a conceptual framework.

1.	Do you agree that: a. relevance and faithful representation are fundamental qualitative characteristics? (See QC2-QC15 and BC2.3-BC2.24). If not, why? Yes. However, we consider that the term ‘reliability’ is a better descriptor of the characteristic than ‘faithful representation’. b. comparability, verifiability, timeliness and understandability are enhancing qualitative characteristics? (See QC17-QC35 and BC2.25-BC2.35). If not, why? Yes. c. materiality and cost are pervasive constraints? (See QC29-QC32 and BC2.60-2.66). If not, why? Is the importance of the pervasive constraints relative to the qualitative characteristics appropriately represented in Chapter 2? Yes.
2.	The boards have identified two fundamental qualitative characteristics – relevance and faithful representation: a. Financial reporting information that has predictive value or confirmatory value is relevant. b. Financial reporting information that is complete, free from material error and neutral is said to be a faithful representation of an economic phenomenon. Are the fundamental qualitative characteristics appropriately identified and sufficiently defined for them to be consistently understood? If not, why? Are the components of the fundamental qualitative characteristics appropriately identified and sufficiently defined for them to be consistently understood? If not, why? Yes. However, we do not see the need to replace the term “reliability” with “faithful representation”.
3.	Are the enhancing qualitative characteristics (comparability, verifiability, timeliness and understandability) appropriate identified and sufficiently defined for them to be consistently understood and useful? If not, why? Yes.
4.	Are the pervasive constraints (materiality and cost) appropriately identified and sufficiently defined for them to be consistently understood and useful? If not, why? Yes.

Yours sincerely

Tony Reeves
National President