March 2018

IFRS® Conceptual Framework

Project Summary

Conceptual Framework for Financial Reporting

Conceptual Framework at a glance

Introduction • to assist the Board to develop IFRS Standards (Standards) based on

consistent concepts, resulting in financial information that is useful to
The International Accounting Standards Board (Board) issued the revised investors, lenders and other creditors
Conceptual Framework for Financial Reporting (Conceptual Framework), a
• to assist preparers of financial reports to develop consistent accounting
comprehensive set of concepts for financial reporting, in March 2018.
policies for transactions or other events when no Standard applies or a
It sets out: Standard allows a choice of accounting policies
• the objective of financial reporting • to assist all parties to understand and interpret Standards
• the qualitative characteristics of useful financial information • a
description of the reporting entity and its boundary • definitions of an
asset, a liability, equity, income and expenses Status
• criteria for including assets and liabilities in financial statements • provides concepts and guidance that underpin the decisions the Board makes
(recognition) and guidance on when to remove them (derecognition) when developing Standards
• measurement bases and guidance on when to use them • • not a Standard
concepts and guidance on presentation and disclosure This • does not override any Standard or any requirement in a Standard
Project Summary summarises:
• why the Board revised the Conceptual Framework Effective date
• the main changes from the previous Conceptual Framework
• immediately for the Board and the IFRS Interpretations Committee
• the main concepts and guidance in each chapter of the
• annual periods beginning on or after 1 January 2020 for preparers who
Conceptual Framework
develop an accounting policy based on the Conceptual Framework
Purpose
2 | Project Summary | Conceptual Framework | March 2018

Why have we revised the Conceptual

Framew

ork?
Approach

Previous Revised for example, the role of measurement uncertainty

Conceptual Framework Priority identified as a priority by stakeholders in the 2011
Agenda Consultation

• issued in 1989 and partly revised in 2010 • useful, but Filling gaps
incomplete and needed improvement for example, guidance on measurement, presentation
and disclosure • a comprehensive set of concepts for financial reporting
In revising the Conceptual Framework, the Board sought The Board views the Conceptual Framework as a
a balance between providing high-level concepts and practical tool to help it develop Standards. Hence, the
providing enough detail for the Conceptual Framework Updating Conceptual Framework includes concepts that help the
to be useful to the Board and others. for example, the definitions of an asset and a liability Board develop Standards and also discusses the factors
the Board needs to consider in making judgements
when application of the concepts does not lead to a
Clarifying single answer.
 Conceptual Framework
Project Summary | Conceptual Framework | March 2018 |3

Main changes
The revised Conceptual Framework introduces the following main improvements:

New
Measurement concepts on measurement, including factors to be considered when selecting a measurement basis Presentation and disclosure

Derecognition
concepts on presentation and disclosure, including when to classify income and expenses in other comprehensive income guidance on when

assets and liabilities are removed from financial statements

Updated
Definitions definitions of an asset and a liability

Recognition
criteria for including assets and liabilities in financial statements

Clarified
Prudence Stewardship Measurement uncertainty Substance over form

4 | Project Summary | Conceptual Framework | March 2018

Chapter 1—The objective of financial reporting

This chapter sets out the objective of general purpose financial reporting (financial reporting), what information is needed to achieve
that objective and who the primary users (users) of financial reports are.

Objective of financial reporting To make both these assessments, users need information about both
To provide financial information that is useful to users in making decisions
the entity’s economic resources, claims against the entity and changes in those resources a
relating to providing resources to the entity
Users’ decisions involve decisions about how efficiently and effectively management has discharged its
responsibilities to use the entity’s economic resources
voting, or
buying, selling or holding
providing or settling loans
otherwise influencing
Summary of changes
equity or debt instruments
and other forms of credit This chapter was issued in 2010 and went through extensive due process at that
time. Therefore,
management’s actions in revising the Conceptual Framework, the Board did not
fundamentally reconsider this chapter. However, it clarified why information used in
assessing stewardship is needed to achieve the objective of financial reporting.

To make these decisions, users assess Stewardship

Users of financial reports need information to help them assess management’s
prospects for future stewardship. The Conceptual Framework explicitly discusses this need as well as
management’s stewardship of the
the need for information that helps users assess the prospects for future net cash
net cash inflows to the entity inflows to the entity.
entity’s economic resources
Users of financial reports
Users of financial reports are an entity’s existing and potential investors, lenders and
other creditors. Those users must rely on financial reports for much of the financial
information they need.

Project Summary | Conceptual Framework | March 2018 |5

Chapter 2—Qualitative characteristics of useful

financial information
This chapter discusses what makes financial information useful.
 For information to be useful it must both be relevant and provide a faithful representation of what it purports to represent. Relevance and faithful representation are
the fundamental qualitative characteristics of useful financial information, and the guiding concepts that apply throughout the revised Conceptual Framework.

Fundamental qualitative characteristics Cost constraint

• the benefit of providing the information needs to justify the cost of providing and using the
Faithful representation
Relevance
• information must faithfully represent
• information is relevant if it is capable of making a
6 | Project Summary | Conceptual Framework | March 2018
substance of what it purports to represent
difference to the decisions made by users Summary of changes
• a faithful representation is,This
to the maximum
chapter extent in 2010 and went through extensive due process at that
was issued
• financial information is capable of making a time. Therefore, in revising the Conceptual Framework the Board did not
possible, complete, neutral fundamentally
and free from error
reconsider this chapter. However, the Board clarified the roles of
difference in decisions if it has predictive value or prudence, measurement uncertainty and substance over form in assessing whether
confirmatory value information is useful.
• a faithful representation is affected by level of
measurement uncertainty Prudence

Neutrality is supported by the exercise of prudence. Prudence is the exercise of

caution when making judgements under conditions of uncertainty. Prudence does
Enhancing qualitative characteristics not allow for overstatement or understatement of assets, liabilities, income or
expenses.
Comparability Verifiability Timeliness Understandability • these four qualitative characteristics enhance
Measurement uncertainty
the usefulness of information
Measurement uncertainty does not prevent information from being useful. However,
• but they cannot make non-useful information useful in some cases the most relevant information may have such a high level of
measurement uncertainty that the most useful information is information that is
slightly less relevant but is subject to lower measurement uncertainty.

Chapter 3—Financial statements and

the reporting entity
This chapter describes the objective and scope of financial statements and provides a description of the reporting entity.

• an entity that is required, or chooses, to prepare financial statements

Financial statements a particular form of financial reports that provide information about
Reporting entity entity’s assets, liabilities, equity, income and expenses
• not necessarily a legal entity—could be a portion of an entity or comprise more
than one entity
 Consolidated that are not all lin
Unconsolidated reporting entity
parent-subsidiary
financial statements
financial statements
financial statements
Summary of changes
provide information about assets,
provide information about assets, This chapter is new.
provide information about assets,
liabilities, equity, income and Boundary of a reporting entity
liabilities, equity, income and Determining the appropriate boundary of a reporting entity can be difficult if, for
liabilities, equity, income
example, and
the entity is not a legal entity. In such cases, the boundary is determined
expenses of both the parent by considering the information needs of the users of the entity’s financial statements.
expenses of the parent only Those users need information that is relevant and that faithfully represents what it
expenses of two or more entities
purports to represent. A reporting entity does not comprise an arbitrary or incomplete
and its subsidiaries as a single collection of assets, liabilities, equity, income and expenses.

Project Summary | Conceptual Framework | March 2018 |7

Chapter 4—The elements of financial statements

This chapter defines the five elements of financial statements—an asset, a liability, equity, income and expenses.

the potential to produce economic benefits

Previous definition of an asset
A resource controlled by the entity as a result Revised definition of an asset
of past events and from which future economic A present economic resource controlled by Summary of changes
benefits are expected to flow to the entity the entity as a result of past events
An economic resource is a right that has The definitions of an asset and a liability have been
refined and the definitions of income and expenses
 have been updated only to reflect that refinement. (a) if a duty or responsibility arises from the entity’s
Previous definition of a liability
customary practices, published policies or specific
The definition of equity as the residual interest A present obligation of the entity arising from statements—the entity has an obligation if it has no
past events, the settlement of which is practical ability to act in a manner inconsistent
expected to result in an outflow from the entity
Main changes in the definition of an asset of resources embodying economic benefits
• separate definition of an economic resource—to clarify Main changes in the definition of a liability
that an asset is the economic resource, not the ultimate • separate definition of an economic resource—to clarify
inflow of economic benefits • deletion of ‘expected flow’— that a liability is the obligation to transfer the economic
it does not need to be certain, or even likely, that Revised definition of a liability resource, not the ultimate outflow of economic benefits
economic benefits will arise • deletion of ‘expected flow’—with the same implications
A present obligation of the entity to transfer an
• a low probability of economic benefits might affect as set out above for an asset • introduction of the ‘no
economic resource as a result of past events
recognition decisions and the measurement of the asset practical ability to avoid’ criterion to the definition of
An obligation is a duty or responsibility that
in the assets of the entity after deducting all its liabilities the entity has no practical ability to avoid obligation
is unchanged. The Board’s research project on Financial with those practices, policies or statements.
Instruments with Characteristics of Equity is exploring
the distinction between liabilities and equity. (b) if a duty or responsibility is conditional on a particular
future action that the entity itself may take—the entity
The revised Conceptual Framework discusses how
has an obligation if it has no practical ability to avoid
No practical ability to avoid the ‘no practical ability to avoid’ criterion is applied
taking that action.
in the following circumstances:
continued ...
8 | Project Summary | Conceptual Framework | March 2018
... continued
related income and expenses
any related income or expenses hav
Unit of account the right(s) or obligation(s), or group of rights and obligations, to which
recognition criteria and measurement concepts are applied

Executory contract
An executory contract is a contract that is equally unperformed. It establishes a single
Selecting the unit of account asset or liability for the inseparable combined right and obligation to exchange
economic resources.
Faithful representation
Relevance Substance of contracts
• a unit of account is selected to provide contractual
To represent a rights and obligations faithfully, financial statements must
• a unit of account is selected to provide relevant report their substance. In some cases, the substance of such rights and obligations
represention of the substance
is clearoffrom
the transaction
a contract’s legal form. But, in other cases, the terms of the contract, or
information about the asset or liability and any of a group or series of contracts, may require analysis to identify the substance of
or other event from which thethe asset,
rights liability
and and
obligations.
 Revised definition of income
Increases in assets, or decreases in liabilities, Revised definition of expenses
Although income and expenses are defined in
that result in increases in equity, other than Decreases in assets, or increases in terms of changes in assets and liabilities,
those relating to contributions from holders of liabilities, that result in decreases in equity, information about income and expenses is
equity claims other than those relating to distributions to just as important as information about assets
holders of equity claims and liabilities.

Project Summary | Conceptual Framework | March 2018 |9

Chapter 5—Recognition and derecognition

This chapter discusses criteria for including assets and liabilities in financial statements (recognition) and guidance
on when to remove them (derecognition).
example:
The process of capturing for inclusion in the statement of financial position or
measurement uncertainty
the statement(s) of financial performance an item that meets the definition of an
low probability of a flow of
Recognition
economic benefits
asset, a liability, equity, income or expenses recognition inconsistency

existence uncertainty (accounting mismatch)

Recognition is appropriate if it results in both relevant information about assets, presentation and disclosur
liabilities, equity, income and expenses and a faithful representation of those items,
because the aim is to provide information that is useful to investors, lenders and
other creditors
Recognition criteria Cost constraint
Cost constrains recognition decisions, just as it constrains other financial reporting de
Faithful representation
Relevance
• whether recognition of an item results in a
• whether recognition of an item results in relevant Summary of changes
faithful representation may be affected by, for
The previous recognition criteria were that an entity should recognise an item that
information may be affected by, for example:
met the definition of an element if it was probable that economic benefits would flow
to the entity and if the item had a cost or value that could be determined reliably. Recognising assets, liabilities, equity, income and expenses depicts an entity’s
The revised recognition criteria refer explicitly to the qualitative characteristics of financial position and financial performance in structured summaries (the statements
useful information. of financial position and financial performance). The amounts recognised in a
statement are included in the totals and, if applicable, subtotals, in the statement.
The Board’s aim was to develop a more coherent set of concepts, not to increase or The statements are linked because income and expenses are linked to changes in
decrease the range of assets and liabilities recognised. assets and liabilities.

Why recognition is important continued ...

10 | Project Summary | Conceptual Framework | March 2018

... continued
Derecognition aims to faithfully represent both
• any
Derecognition The removal of all or part of a recognised asset or liability from an assets and liabilities retained after the transaction that led to the derecognition •
entity’s
statement of financial position the change in the entity’s assets and liabilities as a result of that transaction

Derecognition normally occurs Summary of changes

The guidance on derecognition is new.
For an asset
For a liability
Derecognition resulting from a transfer
when the entity loses control of all or part of the
Normally, a faithful representation of a transfer of an asset or liability is achieved by
when the entity no longer has a present obligation
derecognition of the asset or liability with appropriate presentation and disclosure.
recognised asset
for all or part of the recognised liability
However, in limited cases, it may be necessary to continue to recognise a transferred
component of an asset or liability together with a liability or asset for the proceeds
received or paid, with appropriate presentation and disclosure.
 Project Summary | Conceptual Framework | March 2018 | 11

Chapter 6—Measurement
This chapter describes various measurement bases and discusses factors to be considered when selecting a measurement basis.

③ received to take on an equivalent liability

Historical cost measurement bases
• historical cost provides information derived, at least in part, from the price of the transaction or other
event that gave rise to the item being measured
Summary
• historical cost of assets is reduced if they become impaired and historical cost of liabilities of changes
is increased if
they become onerous The previous version of the Conceptual Framework included little guidance on
measurement.
• one way to apply a historical cost measurement basis to financial assets and financial liabilities isThe
to revised Conceptual Framework describes what information
measure them at amortised cost measurement bases provide and explains the factors to consider when selecting a
measurement basis.

Current value measurement bases

• current value provides information updated to reflect conditions at the measurement date
current value measurement bases include:
• the price that would be received to sell an asset, or paid
to transfer a liability, in an orderly transaction between
market participants at the measurement date
fair value
• reflects market participants’ current expectations about
the amount, timing and uncertainty of future cash flows

• reflects entity-specific current expectations about the

value in use (for assets)
amount, timing and uncertainty of future cash flows
fulfilment value (for liabilities)

• reflects the current amount that would be:

current cost
③ paid to acquire an equivalent asset
continued ...

12 | Project Summary | Conceptual Framework | March 2018

... continued
The factors to be considered when selecting a measurement basis are relevance and faithful representation, because the aim is to provide information that is
useful to investors, lenders and other creditors
measurement uncertainty
Factors to consider in selecting a measurement basis
• if financial statements contain measurement
Relevance
• does not necessarily prevent the use o
Relevance of information provided by a measurement basis is affected by: inconsistencies (accounting mismatch),
measurement basis that provides rele
those
contribution to future cash financial statements may not faithfully
flows
characteristics of the asset or liability information
represent some aspects of the entity’s financial
• the variability of cash flows • but if too high might make it necessary to
positionorand
• whether cash flows are produced directly financial
indirectly in performance
combination with other economic resources selecting a different measurement basis
• sensitivity of the value to market factors or
other risks
• the nature of the entity’s business activities
Cost constraint
• for example, amortised cost cannot provide
• for example, if assets are used inCost constrainstothe
combination selection of a measurement basis, just as it constrains other
produce
relevant information about a deriviative financial reporting decisions
goods or services, historical cost can provide
Selecting relevant basis
a measurement
information about margins achieved in a period
In selecting a measurement basis, it is necessary to consider the nature of the
Faithful representation information in both the statement of financial position and the statement(s) of
financial performance.
Whether a measurement basis can provide a faithful representation is affected
The relative importance of each factor to be considered (see boxes) depends upon
by: measurement inconsistency the facts and circumstances of individual cases.
Consideration of the factors and the cost constraint is likely to result in the selection
of different measurement bases for different assets, liabilities, income and expenses.
 Project Summary | Conceptual Framework | March 2018 | 13

Chapter 7—Presentation and disclosure

This chapter includes concepts on presentation and disclosure and guidance on including income and expenses in the statement of profit or
loss and other comprehensive income.
Recycling
The statement of profit or loss • In principle, income and expenses included in other comprehensive income in one period a
the statement of profit or loss in a future period when doing so results in the statement of pr
• The statement of profit or loss is the primary source of information about an entity’s financial
performance for the reporting period providing more relevant information or a more faithful representation
• When statement
• Profit or loss could be a section of a single statement of financial performance or a separate recycling does not result in the statement of profit or loss providing more relevant inf
or a more faithful representation, the Board may decide income and expenses included in
• The statement(s) of financial performance include(s) a total (subtotal) for profit or loss
comprehensive income are not to be subsequently recycled
income and expenses are classified and included in the statement of profit or loss

Summary of changes
Other comprehensive income This chapter is new.
• In exceptional circumstances, the Board may decide to exclude from the statement of profit or loss
Better
income or expenses arising from a change in current value of an asset or liability and Communication
include those
income and expenses in other comprehensive income
Information about assets, liabilities, equity, income and expenses is communicated
• The Board may make such a decision when doing so would result in the statementthroughof profitpresentation
or loss and disclosure in the financial statements.
providing more relevant information or a more faithful representation
Effective communication of information in financial statements makes that information
more relevant and contributes to a faithful representation of an entity’s assets,
liabilities, equity, income and expenses.
The revised Conceptual Framework includes concepts that describe how information
should be presented and disclosed in financial statements.
The Board is also working on several projects on the theme of Better Communication
to make financial information more useful to investors, lenders and other creditors
and to improve the communication of that information.

14 | Project Summary | Conceptual Framework | March 2018

Amendments to References to the Conceptual
Framework in IFRS Standards—a separate
accompanying document
That document sets out amendments to Standards to update references to the Conceptual Framework.

• Some Standards include explicit references to previous versions of the

Conceptual Framework Exemptions
Objective of the • IFRS 3 Business Combinations
amendments
Totoavoid
• These amendments update those references so they refer unintended consequences, acquirers are required to apply the definitions of
the revised
an asset and a liability and supporting concepts in the previous, rather than the
Conceptual Framework
revised, Conceptual Framework. The
Board plans to assess how IFRS 3 can be updated without unintended
consequences.
• Regulatory
• The Board expects the amendments to references to the Conceptual account balances
Framework
in Standards will not have a significant effect on users and
Whenpreparers of accounting policies for regulatory account balances applying IAS 8
developing
Effects Accounting Policies, Changes in Accounting Estimates and Errors, entities are
financial statements required to refer to the previous, rather than the revised, Conceptual Framework.
This avoids entities revising those accounting policies twice within a short period:
once for the revised Conceptual Framework and again when a revised Standard on
rate-regulated activities is issued.
• The amendments are effective for annual periods beginning on or after
1 January 2020, with earlier application permitted
Effective date and
transition
• The amendments should be applied retrospectively unless retrospective
application would be impracticable or involve undue cost or effort
 Project Summary | Conceptual Framework | March 2018 | 15

Important information
This Project Summary has been compiled by the staff of the IFRS Foundation for the convenience of interested parties. The views
within this document are those of the staff who prepared this document and do not necessarily reflect the views or the opinions of
the Board. The content of this Project Summary does not constitute any advice and is not to be considered as an authoritative
document issued by the Board.
Official pronouncements of the Board are available in electronic format to eIFRS subscribers. Publications are available for ordering
from the IFRS Foundation website at www.ifrs.org.
Other relevant documents
Conceptual Framework for Financial Reporting—describes the objective of, and the concepts for, general purpose financial reporting.
Basis for Conclusions on the Conceptual Framework for Financial Reporting—summarises the Board’s considerations in
developing the Conceptual Framework.
Amendments to References to the Conceptual Framework in IFRS Standards—sets out amendments to Standards, their
accompanying documents and IFRS practice statements.
Feedback Statement—summarises the feedback on the proposals that led to the revised Conceptual Framework.

16 | Project Summary | Conceptual Framework | March 2018

Notes
 Project Summary | Conceptual Framework | March 2018 | 17

Notes

18 | Project Summary | Conceptual Framework | March 2018

Notes
 Project Summary | Conceptual Framework | March 2018 | 19

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