Auditability of Accounting Estimates and the Iasbs Conceptual Framework Exposure Draft (2015)

Abstract

An important aspect of the audit environment is the financial reporting that needs to be verified. In May 2015, the International Accounting Standards Board [IASB] issued an exposure draft [ED] for a new conceptual framework [CF] of financial reporting under International Financial Reporting Standards. We analyse this ED from audit, ethical, and logical perspectives, including by recourse to debate at the first IASB Research Forum held at Oxford University in October 2014. We find that the ED is moving to a rules-based perspective that does not address the problem of financial reporting which deviates from the stated objectives of the CF. This arises from failures to create a CF that is the overarching authority for accounting standards, to coherently integrate the CF with auditing standards, and to put bounds on estimation uncertainty associated with the valuations allowed by the ED. This last failing may be the most critical in that it can prevent the system from being a principles-based social science. In totality, the failings create problems of truthfulness, auditability, and ethics of financial reporting, as documented here.