The cost constraint on useful financial reporting

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Asnake E
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The cost constraint on useful financial reporting

Post by Asnake E »

Hi

The IASB Conceptual framework includes the cost constraint on useful financial reporting. I have difficulty in interpretation of the cost constraint. Specifically my questions are

1. Can reporting entities omit information required by an IFRS or depart from the requirements of the IFRS based on the cost constraint?
2. are there any criteria or preconditions to depart from the IFRS based on the cost constraint?
Yasaswi Gomes
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Re: The cost constraint on useful financial reporting

Post by Yasaswi Gomes »

‘Cost is a pervasive constraint on the information that can be provided by general purpose financial reporting. Reporting such information imposes costs and those costs should be justified by the benefits of reporting that information. The IASB assesses costs and benefits in relation to financial reporting generally, and not solely in relation to individual reporting entities. The IASB will consider whether different sizes of entities and other factors justify different reporting requirements in certain situations. [2.39, 2.43]’

Reporting an economic phenomenon and costs will definitely be linked to report such phenomena. It says, measure an economic phenomenon and report it. If you can, then that is relevant info. If not, find an alternative relevant type of information.

Cost constraint can use different ways to report qualitative information and could possibly narrow information to avoid costs.

However, cost constraints and differences in activities among entities may sometimes lead the Board to permit or require differences in reporting for different types of entities.

Cost is a pervasive constraint that standard-setters, as well as providers and users of financial information, should keep in mind when considering the benefits of a possible new financial reporting requirement. Cost is not a qualitative characteristic of information. It is a characteristic of the process used to provide the information.

To answer your question 1- ‘Depart’ because Materiality backs up the first part of question.
To answer your question 2- Economic phenomena qualitative research, measurement for qualitative data can be different.

https://app1.hkicpa.org.hk/hksaebk/HKSA ... work18.pdf
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Asnake E
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Re: The cost constraint on useful financial reporting

Post by Asnake E »

thank you. Very helpful
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Marek Muc
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Re: The cost constraint on useful financial reporting

Post by Marek Muc »

to sum it up, no - you can't depart from IFRS requirements because compliance would be too costly
Asnake E
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Re: The cost constraint on useful financial reporting

Post by Asnake E »

Thank you.
JRSB
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Re: The cost constraint on useful financial reporting

Post by JRSB »

I always read that aspect of the CF to mean that this is a concept bourne in mind when setting the standards - ie they might think that a certain accounting treatment gives the best information but if that method requires undue time or analysis then a second best option could give better value/cost ratio. So it was more for the standard setters to apply when issuing standards rather than reporters, because the existing standards are already deemed to be not at undue cost.
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nauman
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Re: The cost constraint on useful financial reporting

Post by nauman »

Can you give a specific example where compliance with IFRS requires significant additional cost?
JRSB
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Re: The cost constraint on useful financial reporting

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No because they're designed around the principle of not causing undue cost.
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Marek Muc
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Re: The cost constraint on useful financial reporting

Post by Marek Muc »

such examples would be entity-specific only, I totally agree with JRSB's view
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anandrocker
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Re: The cost constraint on useful financial reporting

Post by anandrocker »

I also agree with JRSB's view
Cheers
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