The CFAI Model is a framework for developing financial reports and disclosures that meet the needs of investors, such as equity investors, creditors and other providers of capital. The CFAI Model sets out 12 principles intended ‘to ensure that financial statements disclosures are relevant, understandable, accurate, and complete’. The CFAI Model also calls for ‘broader, more comprehensive business reporting that provides sufficient information to investors that is needed to understand the wealth-generating activities of a company and the results of those activities’.

The CFA Institute developed the CFAI Model during the period from 2002 to 2007 by consulting broadly with its membership, with professional and governmental organisations concerned with financial reporting around the world, and with the public at large.

The CFAI Model acknowledges that the proposed changes ‘must be made in an orderly fashion as standard setters gradually revise the reporting standards, and some will take many years to realise’. It also identifies some proposals that could be completed in the ‘near term’. In Pacter's view, the IASB’s recent standards are generally consistent with the CFAI Model’s near-term goals, particularly the standards on financial instruments and related disclosures, fair value measurement, business combinations, consolidation, joint arrangements and disclosures of interests in other entities. Further, most of the CFAI Model’s non near-term proposals do not entail one-off actions by the IASB (ie a single new or amended IFRS). Instead, they describe an approach to the continuing design of accounting standards that is broadly consistent with the recent direction of the IASB’s own approach.

Paul Pacter comments, principle by principle, on how the IASB’s recent actions are consistent with the objectives set out in the CFAI Model. These are his observations. He discusses following twelve principles:

1) The primary financial statements must provide the information needed by equity investors, creditors, and other suppliers of risk capital.
 

2) In financial reporting standard-setting as well as statement preparation, the company must be viewed from the perspective of an investor in the company’s common equity.
 

3) Fair value information is the most relevant information for financial decision making.
 

4) Recognition and disclosure must be determined by the relevance of the information to investment decision making, and not based upon measurement reliability alone.
 

5) Transactions and events that affect the company’s economic position must be recognised as they occur in the financial statements.
 

6) Investors’ information requirements must determine the materiality threshold.

7) Financial reporting must be neutral.

8) All changes in net assets, including changes in fair values, must be recorded as incurred in a single financial statement, the Statement of Changes in Net Assets Available to Common Shareowners.

9) The cash flow statement provides information essential to the analysis of a company and must be prepared using the direct method only.

10) Changes affecting each of the financial statements should be reported and explained on a disaggregated basis.

11) Individual line items should be reported based upon the nature of the items rather than the function for which they are used.

12) Disclosures must provide all the additional information investors require to understand the items recognised in the financial statements, their measurement properties, and risk exposures.

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