July 2005

The Board continued its deliberations on the joint IASB/FASB conceptual framework project. The Board discussed issues relating to (a) the meanings of stewardship and accountability and their relationship to objectives of financial reporting, and (b) relationships between qualitative characteristics of financial reporting information and how they are used in building decision-useful financial reports.

Stewardship and accountability

The Board agreed that stewardship or accountability should not be a separate objective of financial reporting by business entities in the converged framework. The Board agreed that the converged framework should clearly describe its meaning of stewardship, which encompasses management’s responsibility not only for the custody and safekeeping of assets entrusted to it but also for their efficient and profitable use. As a consequence, the Board agreed that the converged framework should clarify that financial information useful for making investment, credit, and similar resource allocation decisions – the primary objective — would include financial information useful for assessing management’s stewardship. Board members suggested that the framework also recognise that the terms stewardship and accountability are used with different meanings in different jurisdictions.

Qualitative characteristics of financial reporting information

The Board agreed that staff should further develop a description of how qualitative characteristics of financial reporting information are used to build decision-useful financial reports. Board members observed that the different qualitative characteristics, which include relevance, faithful representation, comparability, understandability, and their sub-qualities, sometimes suggest different answers to standard-setting and financial reporting issues. Previously, discussion of such differences has focused on hierarchy (ie which characteristics prevail over others because they are ranked higher) or bargaining (ie how much of one quality we are willing to ‘trade-off’ to get more of another quality.) The Board agreed that it would be better to view consideration of the qualitative characteristics of financial reporting information as steps in a process that results in decision-useful financial reporting. Board members suggested several improvements to the description and illustration of the process proposed by the staff.

The FASB will separately discuss the same issues on 27 July 2005.