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What is the purpose of this Artikel?
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The construction and reconstruction of reliability in financial reporting standard-setting.
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One of the most important properties of financial accounting has been the qualitative characteristics of reliability.
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The trade-off between relevance and reliabiliy has shape accounting discourse over years.
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In 2010, reliability was replaced by “faithful representation”
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verifiability = Reliability + faithful representation
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Verifiability: no fair value
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Wat is nou de belangrijkste voor de kwaliteit van de informatie?
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Information shall be understandable
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Information is available to decision makers before it loses its capacity to influence decisions
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Capable of making a difference whether the users use it or not
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That helps assure users that information faithfully represents the economic phenomena (werkelijkheid)
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What have Paton and Littleton (1940) identified?
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Verifiable, objective evidence, ensuring the ‘‘dependability of the accounts as acentral concept of accounting practice.
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Impersonal and external to the person most concerned, in contrast with that person’s unsupported opinion or desire
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Historically, the beginning of bookkeeping practices was based on using accounting the help people remember past transactions, because the human brain is limited
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Closely related to auditing function
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Trade was facilitated by keeping accounts which could be verified by third parties (e.g. creditors)
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accounting was defined by practical knowledge: ‘‘accounting is what accountants do’’
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accounting conventions are conservatism and consistency
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How we can achieved the reliability?
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Guaranteeing that accounting information is a faithful representation of what it purports to represent, ‘‘coupled with an assurance for the user, which comes through verification, that it has that representational quality.
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Thus, representational faithfulness and verifiability are equally important components of reliability, supplemented by the related concept of neutrality
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free from error and bias and faithfully represents
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Practioners were strongly opposed to current values in financial statements
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faithful representation can be linked to the increasing influence and promotion of current value
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faithful representation can be linked to the increasing influence and promotion of fair value
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The reliability/faithful representation–discussion was associated with the conflict of fair value vs. current cost
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The final framework document of IASB suggests anonymous support for the change to reliability
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What is as a description of neutrality:
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To be reliable, the information contained in financial statements must be neutral
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free from bias
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Assets or income are not overstated and liabilities or expenses are not understated.
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conceptually extends the boundaries of appropriate financial reporting
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the original idea of the verifiability of accounting
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The absence of bias intended to attain a predetermined result or to induce a particular behaviour
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Neutrality is supported by the exercise of prudence
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What are the consideration of conservatism in the pre-2010 Framework?
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the exercise of conservatism, in the form of a degree of caution, under conditions of uncertainty, in not overstating net assets
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the exercise of conservatism, in the form of a degree of caution, under conditions of uncertainty, in overstating net assets
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the absence of conservatism, in the form of a respect for neutrality, avoiding a deliberate understatement of net assets
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the absence of conservatism, in the form of a respect for reliability, avoiding a deliberate overstatement of net assets
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The revised Framework states that for financial information to be?
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useful
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relevant
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faithfully represent
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reliability
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Conservatief
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Why is the conceptual foundation of accounting conservatism continously changing?
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The Board sought a balance between providing high-level concepts and providing enough detail for the Conceptual Framework to be useful to the Board and others.
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The Conceptual Framework as a practical tool to help it use Standards.
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Users of financial reports need information to help them assess management’s stewardship.
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the Board clarified the roles of prudence, measurement uncertainty and substance over form
in assessing whether information is useful.
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Waaruit bestaat in het artikel de Construction of concept of “Reliability?
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Compromise between practioners and academic views
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Reliability = verifiability + faithful representation
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Verifiability: no fair value
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Extending of the boundaries of financial reporting away from verifiability to forwardlooking
estimates (relevance over reliabililty)
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Constituents will continue to use the term ‘reliabiliy”.
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Wat betekent the ''twisting words'' zoals bedoeld in het artikel?
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As qualitative characteristics are (necessarily) abstract and vague notions, however, they remain open to a broad range of different interpretations
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Due to agreement for best solution to problems: theory was created
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Creation of accounting standards based on sound theory>> academic involvement
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To analyze best standard: qualitative characteristics
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ASOBAT was published in 1966 and by then the notion of ‘‘reliability’’ had been dropped.
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Instead ASOBAT articulated ‘‘four basic standards [. . .] as providing criteria [. . .] in evaluating potential accounting information’. Identify these four characteristics?
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Verifiability
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Objectivity
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Freedom from bias
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Relevance
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Quantifiability
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Faithfull representation
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The concept of Reliability is compromise between?
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traditional idea of objectivity reflected in the characteristic of verifiability
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deeply entrenched in accounting practice but redefined as the academics’ consensus concept
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the faithful representation of economic phenomena as part of economic decision models
with a focus on valuation decisions by users
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Practioners were strongly opposed to current values in financial statements
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Fair value was initially adopted not on the basis of academic theories, but?
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What argued The IASB regarding including verifiability in the frame work?
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including verifiability as an aspect of faithful representation could result in excluding information that is not readily verifiable
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would make the financial reports much less useful
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verifiability is desirable but not necessarily required