The conceptual foundation for the accounting of financial instruments

Abstract: The International Accounting Standards Board (hereafter IASB) has stated in the 2010 version of the Conceptual Framework for Financial Reporting (hereafter Conceptual Framework) that the concepts contained in the Conceptual Framework would be used to develop the principles for accounting for transactions in future accounting standards. Hence, the concepts in the Conceptual Framework would form the foundation for the principles for the identification, recognition, measurement and derecognition of all assets and liabilities. Scholars have, however, identified inconsistencies between previous versions of the Conceptual Framework and the standards that govern the accounting for financial instruments. The purpose of this study was to determine whether the concepts contained in the 2018 Conceptual Framework are aligned to the principles in International Accounting Standard 32 Financial Instruments: Presentation (hereafter IAS 32) and International Financial Reporting Standard 9 Financial Instruments (hereafter IFRS 9). In 2014, the IASB issued IFRS 9, which contains the principles for the classification and measurement of financial instruments. The IASB also issued a revised Conceptual Framework in 2018 to address gaps identified in the previous Conceptual Framework. As IFRS 9 and the 2018 Conceptual Framework contain revised principles and concepts that differ from those contained in the previous documents, it is necessary to determine whether alignment has finally been achieved between the Conceptual Framework and the principles for accounting for financial instruments in IFRS 9 and IAS 32. The study involved a comparison of the concepts in the 2018 Conceptual Framework to the principles used for accounting for financial instruments contained in IFRS 9 and IAS 32. The comparison involved an examination of the definitions of the elements in the Conceptual Framework and the definitions of a financial asset, a financial liability and equity as contained in IAS 32. It also involved an analysis of the concepts relating to the recognition, measurement and derecognition of assets and liabilities contained in the Conceptual Framework as well as the corresponding principles relating to the recognition, measurement and derecognition of financial instruments in IFRS 9. The study revealed that the definitions for the elements in the Conceptual Framework are aligned to the definitions for financial instruments in IAS 32. In addition, the...M.Com. (Accounting