In the IASB standard-setting conceptual framework, the word “reliability” has been replaced with “faithful representation.” This has caused much discussion among preparers of financial information. The change has led to other implications related to substance over form, neutrality, conservatism, and the ability of entities to “override” a standard in very rare circumstances.

Instructions
Discuss the following questions. (You may find the IASB’s Basis for Conclusions on the ExposureDraft Conceptual Framework for Financial Reporting, of May 2015 (https://www.ifrs.org/-/media/project/conceptual-framework/exposure-draft/published-documents/ed-conceptual-frameworkbasis-conclusions.pdf), and Summary of the Discussion Paper: A Review of the Conceptual Framework for Financial Reporting, of January 2015 (http://archive.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Documents/Effect-of-Board-decisions-on-DP-January-2015.pdf), helpful in your discussion.)

a. “Faithful representation” has replaced the term “reliability” as a fundamental qualitative characteristic of financial information. What does faithful representation mean and how does this differ from reliability? Why was the term “reliability” replaced?

b. What does “substance over form” mean? Give examples of where this might be relevant.