The Financial Accounting Standards Board and the International Accounting Standards Board have finished the first phase of a long-term project to rewrite their own conceptual framework, a set of ground rules for making decisions about new accounting rules.

FASB has published Concept Statement No. 8 to replace its existing Concept Statements 1 and 2. The statement defines how FASB should regard the objectives and the qualitative characteristics of financial reporting when considering new accounting rules. The two boards have been toiling on writing the conceptual framework with the hope that it eventually will lead to a more solid foundation for writing accounting standards in the future.

The objective is to develop a framework that will drive rulemaking decisions in a common direction, producing rules that are based on principles rather than prescriptive guidance. The boards also are targeting an outcome that would drive rules that are consistent with one another and that will lead to converged rules for U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards.

While it may sound like an undertaking that only an academic could love, IASB member Philippe Danjou explains in an IASB podcast why preparers of financial statements should pay closer attention to the boards’ conceptual framework project. Danjou says the framework is important for any rational organization making policy decisions to assure it is following a consistent basis for making decisions.

“It is very much hard to understand why people are making a decision when you don’t know on what basis they make it,” he said. “We as a board believe we must have an explicit framework. It provides a clearer understanding for users.” It also adds transparency to the rulemaking process, Danjou said.

Even further, an accepted framework can help build consensus around future rulemaking, he said. “It is easier for stakeholders to accept what we do,” he said. “If they don’t accept our framework, they can’t accept our standards. If they accept our framework, they probably more easily accept why we developed a standard.”

The recently published concept statement represents the first of eight phases in the long-term project. Additional draft documents in development address issues such as elements and recognition, measurement, and reporting entities.