Review and Analysis Proceeding E Book 4A Turky

2051 with that objective and the Boards basis for it? If not, why? Please provide any alternative objective that you think the Boards should consider. 1 Respondent Types and the Geographic Regions IASB classified the comment letters received into 9 respondent types in order to enable the Board members to understand the perspective of the respondents and anticipate potential biases. The details of its classification are summarized in Table 1: Respondent Type. Table 1. Respondent Type Respondent Type Number of Respondents Percentage Professional Organizations 33 23 Individuals 27 19 Preparers 16 11 National standard-setters 16 11 Investors Analysts Users 12 9 Accounting firms 7 5 Academics 7 5 Regulators 8 6 Others NFPs, public sectors 16 11 Total 142 100 The 139 respondents were classified by IASB as writt en in the ‗Comment δetter summary: Objectives and Qualitative Characteristics.‖ However, γ more comment letters were received after the board meeting. Thus, we add those 3 comment letters according to IASB‘s classification. Most of the respondents, 33 from 142 respondents or 23, are professional organizations. Sequentially, 19 comment letters are from individual, and followed by preparers, national standard-setters, and other NPFs, public sectors with 11 per each type. 2052 Furthermore, IASB also identified the respondents by their geographic regions, which are summarized in Table β: Respondents‘ Geographic Region. Table 2 Respondents‟ Geographic Regions Geographic Region Number of Respondents Percentage Europe 62 44 North America 39 27 Multi-regional 18 13 AustraliaNew Zealand 10 7 Asia Pacific ex. AustraliaNew Zealand 9 6 Africa 3 2 Middle East 1 1 Total 142 100 Similar to the previous classifications, IASB has classified 139 comment letters into 7 geographic regions. We add on 3 more comment letters which were later received by the Boards. From the classifications, it could be seen that most of comment letters come from Europe, which is 62 from 142 respondents or 44, followed by comment letters from North America 27 and multi-regional 18. 2 Responses Regarding Entity Perspective As to the first question, responses are summarized in Table 3: Responses Regarding Entity Perspective. 2053 Table 3 Responses Regarding Entity Perspective Responses Addressee Total IASB FASB Unknown A. Agree 63 1. Totally agree 2. Generally agree, but recommend something Generally agree, but need more discussion 29 22 3 5 6 - 1 - - 35 28 3 B. Disagree 22 1. Totally Disagree 2. Disagree and recommend something Disagree and need more discussion 6 14 4 1 1 - - - 7 15 4 C. No Opinion 57 1. Blank 2. Some suggestions More discussion 13 19 9 18 - - 4 3 - 35 22 9 Total 103 31 8 142 We divided the 142 comment letters received into three groups: agree A, disagree B, and no opinionC . First group is those who agree that an entity‘s financial reporting should be prepared from the perspective of the entity entity perspective rather than the perspective of its owners or a particular class of owners proprietary perspective. There are 35 comment letters who totally agree A.1. and 28 comment letters show agreement but also recommend something to the Boards at the same time A.2.. Included in the second subgroup are comments who suggest in-depth discussion. Subtotal for Group A is 63 comment letters. In A.1., each comment letter expresses its agreement differently. Some of them express it in a very simple way, such as comment from American Institute of Certified Public Accountants AICPA which explicitly writes, ―Technical Issues Committee TIC supports the Boards‘ conclusion‖. Another type of comment A.1 is shown by expressing agreement with longer reasons, such as written by Cooperative Eu rope, ―In our view, the entity perspective 2054 should be the entity‘s financial reporting perspective. We fully agree with the boards‘ conclusion that an entity obtains economic resources in exchange for claims its liabilities and equity and information about the economic resources its assets from capital providers equity investors, lenders and other creditors.‖ In A.2., an example of comment letter is from Junichi Akiyama and Michimasa Satoh. It expresses agreement but also give recommendation to the Bo ards by writing, ―We agree that the Boards decided that an entity‘s financial reporting should be prepared from the perspective of the entity entity perspective rather than the perspective of its owners or a particular class of owners proprietary perspective. At the same time, we would like to propose to add the following sentence at the end of OB6, and just before a, ‗Funds provided by all capital providers have a cost to the entity‘‖. Group B classify comment letters with disagreement. There are 22 comment letters in the second group, with 7 ‗disagree‘ comment letters B.1. and 15 ‗disagree and recommend something‘ comment letters B.β.. Included in B.2 are 4 comments which disagree and recommend the Boards to conduct a discussion such as an open debate. Most of comments in Group B are in B.2, which express disagreement and also recommend something. An example of comment letter is written by Accounting Standard Board Japan ASBJ. It states its disagreement in some parts of the comment letters, ―The entity perspective is meaningless, if the claims are to be distinguished into liability and equity‖ and add some recommendation in another part of the comment letter, ―We believe that the objective of financial reporting would be more easily achieved by focusing on the shareholders of the parent company who bear the final risks, rather than focusing on all classes of users.‖ The last group is Group C, which consists of 57 ‗no opinion‘ comments. γ5 comment letters leave this part blank C.1. and the other 22 comment letters write some suggestions C.2. The Japanese Institute of Certified Public Accounting JICPA writes that 2055 they ―neither agree nor disagree‖ and suggest that there should be ―some room and flexibility for possible reconsideration of this issue depending on the direction of future discussion should be provided.‖ It should be noted here again that three different comment letters were sent from Japan to IASB. 3 Responses Regarding Present and Potential Capital Providers as the Primary User Group For the second question, the answers are summarized in Table 4: Responses Regarding Present and Potential Capital Providers as the Primary User Group. Table 4 Responses Regarding Present and Potential Capital Providers as the Primary User Group Responses A. Agree 63 1. Totally agree 2. Generally agree, but recommend something Generally agree, but need more discussion 29 34 - B. Disagree 23 1. Totally Disagree 2. Disagree and recommend something Disagree and need more discussion 11 12 - C. No Opinion 56 1. Blank 2. Some suggestions More discussion 31 25 1 Total 142 The classification of comment letters received for the second questions is similar to the previous question. In the first group, there are 29 comments which agree with the term ‗capital providers‘ A.1. and γ4 comments which generally agree but recommend something A.2.. The subtotal in Group A is 63 comment letters. AICPA fully support the Boards ‘ conclusion A.1. by writing, ―Technical Issues Committee TIC supports the boards‘ conclusion.‖ Comment δetter from Accounting Standards Boards ASB is one example in 2056 A.β., ―The ASB is in general agreement with the IASB that primary user group comprises the present and potential capital providers. However, there are a few inconsistencies in the way this has been expressed in the proposals in the ED…‖ In Group B, subgroup B.1 totally disagree consists of 11 comments while B.2 disagree and recommend something consists of 12 comments. Subtotal for this group is 23 comment letters. Cooperative Europe is one of comments in B.β., ―We disagree with the concept that IASB gives as a ‗capital provider‘, which is divided into equity investors, lenders, and other creditors. The problem is that only capital provided by equity investors will be shown in the balance sheet. Moreover, cooperatives Europe would like to enhance the main problems with ‗equity investors‘ definition…‖ Being classified in Group C are those with no opinion regarding the term ‗capital providers‘. γ1 comment letters do not give any comments C.1 and β5 comments write come suggestion, including one comment that recommend more discussion C.2. Subtotal for this group is 56 comment letters. European Financial Reporting Advisory Group EFRAG is included in C.β. In its comment letter, EFRAG writes, ―It might be best to start by identifying the users of financial statements and their information needs, then, after considering what information general purpose financial reports could reasonably be expected to provide, narrow that down to a list of users information needs that general purpose financial reports should be designed to meet; and then translate that into an objective for general purpose f inancial statements…‖ 4 Responses Regarding Broad Decisions Goal The results for the last question in chapter 1 are summarized in Table 5: Responses Regarding Broad Decisions Goal. We use the same classification to summarize responses in the last question. In Group A, there are 61 comment letters, with 35 comments in A.1 totally agree and 26 comments in A.2 generally agree, but recommend something. 2057 In A.1., there is Accounting Standards Executive Committee of the American Institute of Certified Publ ic Accountants AcSEC which simply expresses its support by writing, ―Agree with the Boards‘ conclusion and basis for it‖. In A.β., there is Association of International Accountants which writes, ―AIA accepts the proposed objective and again urge the Boards to fully recognize the negative implications.‖ Table 5 Responses Regarding Broad Decisions Goal Responses A. Agree 61 1. Totally agree 2. Generally agree, but recommend something Generally agree, but need more discussion 35 26 - B. Disagree 11 1. Totally Disagree 2. Disagree and recommend something Disagree and need more discussion 6 5 - C. No Opinion 70 1. Blank 2. Some suggestions More discussion 40 30 - Total 142 Group B consists of 11 comment letters. 6 comments go to classification B.1 totally disagree and 5 comments in B.2 disagree and recommend something. The last group or Group C, similar to previous sections, consists of comment letters with ‗no opinion‘. 40 comment letters do not write anything in this part, while 30 comment letters leave some suggestions. Example of comment in C.β is the comment from BUSINESSEUROPE, ―We recommend that: a Stewardship and accountability remain as a separate objective from decision usefulness, b The boards in standard-setting have the duty of identifying any information which would be relevant for such a purpose, and c Stewardship and accountability as a separate objective are dropped at the next revision of the framework if 2058 bases for conclusions of future standards make it clear that no specific consideration needs to be given to the information needs they generate.‖

3. The IASB Update

Surprisingly, after the two documents that affirmed the entity perspective as the basic perspective, the Boards decided two amendments on the proposals of Exposure Draft in the IASB Update in March 2009 Board Decision on International Financial Reporting Standards. One of the amendments was ―to avoid using, when possible, the terms entity perspective, entity theory, and proprietary perspective because they do not convey the boards’ view‖. The Boards also directed the staff to start drafting the final versions of the chapters on the objective of financial reporting and the qualitative characteristics of and constraints on financial reporting. The update was the result of IASB meeting in March 2009, as written in the Information for Observers. IASB decision was based on the comments from respondents that ―entity perspective or entity theory, proprietary perspective or proprietary theory and parent company approach have different meanings to different people. In fact, the Boards itself think it is not clear whether the Boards used the terms with the same meanings in all cases. Therefore, it was recommended that the conceptual framework describe the Boards‘ view without labeling them, particularly in the objectives chapter. The idea could be described more clearly by saying that financial statements should focus on providing information about the financial position and changes therein of the entity itself ‖. FASB‘s minutes in April β009 also mentioned similar conclusion regarding the use of the term entity perspective. Along with IASB, FASB staff recommended that the exposure draft described the Boards‘ view without labeling entity perspective, proprietary perspective, and parent company approach. Besides appeared in the phase A the objective and qualitative characteristics, the term ―entity perspective‖ also appeared in the Discussion Paper of phase D reporting entity concept. 2059 Since in the phase A the Boards decided that financial reports should be presented from the entity perspective, in the context of a group reporting entity, financial statement are prepared from the perspective of that group, not from the perspective of the paren t company‘s shareholders. The Boards now is drafting the Exposure Draft of the Reporting Entity Concept. The Exposure Draft of the reporting entity concept will then similarly delete all the explanations using this term.

4. The New Analysis of Equity Theory

The main reason of the confusion that happened on the Boards may be attributable to the fact that the new entity theory proposed by Robert N. Anthony was not clearly understood by many respondents. The two most held views in corporation accounting, which affect how the businesses are managed, are proprietary concept and entity concept. The contrast between those two views will be first briefly explained. Subsequently, the new definition of entity theory by Robert N. Anthony will also be explained. 1 Proprietary Theory Proprietary theory might have been widely understood in an almost uniform viewpoint. According to this theory, company is owned by some persons or group, which is the center of interest, and also called as proprietor. Paul Rosenfield 2005 defined proprietor as, ―a person or persons who are the ultimate beneficiaries of success or suffers of failure of the business and to whom duties of the business to transfer resources to them are discretionary‖. εoreover, Vatter 1947 also described, ―For proprietary theorist the proprietor is the person to whom and for whom reports are made, and the concepts of net worth and profit are personal ideas, in that the proprietor‘s interest is the axis around which the process of accounting revolve‖.