If Sisyphus were an accounting rulemaker, he probably would be working on the conceptual framework project.

The International Accounting Standards Board has been laboring mightily on the long-running project, which in past years was a joint effort with the Financial Accounting Standards Board. To put it mildly, the work continues to pose a challenge. Rulemakers certainly hope that labor will not be futile.

FASB as a decision-making entity has ceased work on the full updating of the framework, after two chapters – on objectives of financial reporting and “qualitative characteristics of useful financial information” – were issued in September 2010 (FASB Concepts Statement No. 8). Over the past three to four years, the U.S. board instead has focused on completing core, joint projects on revenue recognition, leases and financial instruments.

A senior FASB staff accountant has been “seconded” to IASB – working on loan in assisting the framework builders in London. However, his work has been paused as the international board gets set to issue a discussion paper on the framework by “June 33^rd” – that is, end of the second quarter or bust.

It remains up in the air, as of this writing, as to what course FASB would like to follow in considering a restart of active, board-level work on the conceptual framework. The framework and other standard-setting topics are being studied as candidates for the U.S. board’s next rule-making agenda as the big joint projects are expected to wind down over one to two years. 

Among leaders in accounting rule-making, the lack of completion of the nearly nine-year-old joint framework effort has led to some unhappiness. Robert Herz, FASB chairman from 2002 through 2010, wrote in his recent professional memoir, “Accounting Changes,” that, looking back on his service of chairman, “one of my greatest disappointments is not making more progress on improving the conceptual framework.”  

Long History.

To novices out there, the conceptual framework is essentially a set of constitution-like guideposts for rulemakers as they write accounting standards. Without those guideposts, FASB and IASB might go astray in their journeys toward workable standards anchored in principles. Also, to adapt a truism of bureaucratic organization, principles protect those who adhere to them.

The conceptual framework project has had a fairly long history, although not as long as the effort on consolidations. (Michael Crooch, a former FASB member, used to say that the consolidations project was old enough to vote.)

In an accounting “Outlook” piece that I wrote in late 2004, I referred to  the FASB’s “new, years-long project with IASB aimed at writing a shared conceptual framework.” The two boards in April 2004 described what are essentially internal and external roles for the set of conceptual markers, as paraphrased by this BNA correspondent: “The framework would not only aid standard-setters in their work”; it also would “communicate to the wider world the principles that are to guide the boards.”

Controversies in Concepts.

Some nine years ago, Herz said that the concepts effort also was “a way to sit back and debate these issues that continue to be flashpoints.” Those potentially incendiary topics include measurement bases and touch – at least obliquely – on cost-versus-fair value, what Herz used to describe as “the holy war” in accounting (a buzz-phrase that has fallen out of favor).

James Leisenring, FASB’s former vice chairman and also a former member of IASB, commented on the importance of the conceptual framework in one of his last speeches as a sitting board member in April 2010. He spoke of “the inclination to tinker and change between boards as they turn over,” which points to a need for a formal framework to make and maintain principles-based standards, he suggested.

“Everybody’s got their pet thing they want to fix, and if they don’t have a framework, it’s not going to be fixed in any consistent manner,” Leisenring added.

The framework is being discussed by the new Accounting Standards Advisory Forum, the multinational panel providing counsel to IASB as the board’s fairly exclusive, bilateral rulemaking arrangement with FASB draws to an end.

At a May 2 speech at Baruch College in NY, FASB Chairman Leslie Seidman spotlighted the framework as one of the projects being considered by the ASAF. She highlighted, within that, the subtopics of measurement, derecognition and the use of “other comprehensive income.” “OCI” is a kind of in-between category in recognition, situated on a sort of doesn’t-really-count-as-much mezzanine between historical cost and fair value amounts marked through earnings.

Discussions on OCI tend to breed some controversy, too. Other comprehensive income has a bit of a taint attached to it. Over the years, some in accounting rulemaking circles have talked about the perception of it being a kind of dumping ground for items for which there is not enough support to record at fair value, but for which the cost basis is not seen as kosher.

It might be that laying a conceptual foundation for OCI will put some boundaries around its use – and also provide a bit more legitimacy for its past, present and future invocation.

By Steve Burkholder

Bloomberg BNA Staff Corresspondent