The Financial Accounting Standards Board (the "FASB") recently completed an update to its Conceptual Framework for Financial Reporting (the "Framework"). The Framework is a body of interrelated objectives and fundamentals that provides the FASB with guidance as it sets standards for financial accounting and reporting. The update marks the end of a significant project that began with the first concepts statement in 1978 and culminates with the issuance of a new chapter to the FASB's Framework in July 2024. The new Chapter 6, Measurement, provides objectives and concepts for FASB to consider when choosing a measurement system for an asset or a liability recognized in general purpose financial statements. It describes:
- Two relevant and representationally faithful measurement systems: the entry price system and the exit price system, and
- Considerations when selecting a measurement system.
In a statement released on August 12, 2024, Paul Munter, the Chief Accountant for the Securities and Exchange Commission's Office of the Chief Accountant, emphasized the importance of the updated Framework in shaping FASB's standard-setting activities to guide the FASB in developing improved accounting principles to enhance the accuracy and effectiveness of financial reporting and the protection of investors in the public interest.
The Chief Accountant underscored that the updated Framework will be a critically important component of the FASB's standard-setting agenda, including by assisting the FASB in determining which projects to prioritize and how to scope and evaluate those projects. The Framework will assist the FASB in deciding whether to focus on disclosure requirements or address more fundamental issues related to the recognition and measurement of financial elements. By assessing whether each project is consistent with the principles laid out in the Framework, the FASB can develop standards that result in financial reporting that best serves the needs of investors and protects the public interest.
The Chief Accountant also highlighted that the updated Framework offers significant benefits to stakeholders by promoting transparency and understanding in the standard-setting process. The FASB's application of the updated Framework in public deliberations will allow it to more clearly articulate the reasoning behind its decisions, facilitating greater understanding and feedback from stakeholders.
Given the importance of quality in financial reporting for the strength of the capital markets, the completion of the updated Framework underscores the FASB's focus and commitment to developing and maintaining high-quality accounting standards that meet investor needs and serve the public interest.
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