For the complete Conceptual Framework project chronology, please go to our Conceptual Framework Project Overview page.

Timetable

• Click for IASB Project Timetable

Background

At their joint meeting in October 2004, the IASB and the US FASB decided to add to their respective agendas a joint project to develop a common conceptual framework, based on and built on both the existing IASB Framework and the FASB Conceptual Framework, that both Boards would use as a basis for their accounting standards.

The two boards reached the following tentative decisions about the approach to the project:

• The project should initially focus on concepts applicable to business entities in the private sector. Later, the boards should consider the applicability of those concepts to other sectors, beginning with not-for-profit organizations in the private sector.
• The project should be divided into phases, with the initial focus being on achieving the convergence of the frameworks and improving particular aspects of the frameworks dealing with objectives, qualitative characteristics, elements, recognition, and measurement. Furthermore, as the frameworks converge and are improved, priority should be given to addressing issues that are likely to yield benefits to the boards in the short term, that is, cross-cutting issues that affect a number of their projects for new or revised standards.
• The converged framework should be in the form of a single document. It should include a summary and a basis for conclusions.

Project Is Being Conducted in Eight Phases

The Conceptual Framework project is being conducted in eight phases. We have organised our project notes on IAS Plus with a separate web page for each phase plus a page on the overall approach to the project (click below to go to the relevant page):

• Overall Approach to the Project
• Phase A: Objectives and Qualitative Characteristics
• Phase B: Elements and Recognition
• Phase C: Measurement – This Page
• Phase D: Reporting Entity
• Phase E: Presentation and Disclosure
• Phase F: Purpose and Status
• Phase G: Application to Not-for-profit Entities
• Phase H: Remaining Issues

Discussion at the April 2006 Joint IASB-FASB Meeting - Measurement

Measurement: Planning

The staff presented the Board with the progress plan for the Measurement phase of the Conceptual Framework project. (The progress plan timetable was not handed out to observers).

As the staff considered the current milestones under the measurement phase to lack organisational rationale for addressing fundamental and difficult measurement issues, they presented the Boards a new measurement phase based on three milestones:

• a. Milestone I: Defining and describing the properties of potential measurement bases
• b. Milestone II: Evaluating measurement bases using criteria that include the qualitative characteristics
• c. Milestone III: Conceptual conclusions and practical applications from Milestones I and II

Some Board members expressed their concern that characteristics for considering a measurement basis was not indented to be a part of Milestone I of the measurement phase while other Board members had a perception that this was unnecessary at the first stage.

The Boards agreed to the staff's proposal for a single measurement phase and agreed the proposed restatement of measurement milestones and issues.

The Boards were asked whether they would agree to the proposal regarding public consultations for each milestone in the measurement phase.

Many Board members were supportive to the proposal, and commented that this would give the opportunity to have a two way communication with constituents. It was also noted that this could result in more constituents getting involved, considering the alternative, which is asking for comments in the form of letters.

The Boards supported the proposal. Staff added that they were aiming to do some consultations before the year end.

Eventually it was decided that the Boards would issue a Staff Paper at the end of the first milestone, a Preliminary Views document after reaching decisions in the second milestone, and an exposure draft after making decisions in the third milestone.

November 2006: Measurement round-tables Scheduled for January and February 2007

The IASB and FASB will hold round-table discussions on Measurement in conjunction with their joint Conceptual Framework project in three locations during January and February 2007. The objectives of these round-tables are:

• To hear constituents' views on measurement early in the measurement phase of the conceptual framework project.
• To discuss whether the list of measurement issues identified in the plan for the measurement phase of the conceptual framework project is appropriate and substantially complete.
• To discuss whether the initial inventory of potential measurement bases prepared by the project staff and the terminology associated with that inventory is substantially complete and understandable

Discussion at the March 2007 IASB Meeting - Measurement

Roundtables summary The staff presented a paper summarising comments shared by participants at the conceptual framework project-measurement roundtables held in January and February, 2007, with members of the Boards and staff of the IASB and FASB.

One Board member pointed out that the paper also includes 'absolutely absurd statements' and recommended not to publish the document. Senior staff responded that a disclaimer would be included particularly stipulating that the statements were not those of Board members and that they do not reflect the views of the Board.

The Board decided to publish the document in order to fulfil the promise made to participants. However, an appendix might be included to segregate those statements that are considered to be demonstrably wrong.

Plan for using measurement roundtables comments

The Board made the following amendments to the overall project plan for this Phase:

• Not to hold roundtable discussions at the beginning of milestones II (Evaluation of measurement bases using qualitative characteristics) and III (Conclusions and applications) mainly because the roundtables held in January and February 2007 touched every aspect of the measurement phase.
• To issue comprehensive milestone summaries at the end of milestones I and II instead of the originally planned milestone draft (milestone I) and the preliminary views document (milestone II). The milestone summaries will not ask for comments formally but constituents will be encouraged to express their views.
• A preliminary views document will be issued at the end of milestone III. An Exposure Draft would be issued after the Board had analysed the comments on the preliminary views document.

The Board agreed to a number of staff proposals regarding the next steps in the project. These include the preparation of various papers addressing issues raised in the roundtable discussions such as:

• Providing a simpler and clearer grouping of the measurement basis candidates
• Analysing 'high-level issues' such as capital maintenance and monetary unit before evaluating the measurement basis candidates
• Discussing decision usefulness in general and evaluating the measurement basis candidates by using the relevance criterion before considering the other qualitative characteristics

Discussion at the Joint IASB-FASB Meeting in April 2007 - Measurement Bases

Inventory of measurement bases

The Boards discussed a revised staff analysis of measurement basis candidates, which was prepared after considering comments and other input derived from suggestions made by Board members and Roundtable participants. The discussion focussed on Appendix B in Observer Note 14. The staff analysis re-grouped the array of possible measurement bases of entry and exit prices into broad categories of 'past', 'present' and 'future'. This analysis was represented the original 19 bases presented at the January-February 2007 Roundtables plus three others: modified past entry amount, current equilibrium price, and value in use.

Board members appeared confused about the purpose of the analysis and some had specific misgivings both about the past- present-future split and some of the items included. Some of the confusion was over terminology. For example, it was suggested that 'current equilibrium price' was not far from Level 1 measures in FAS 157 Fair Value Measurements. Others challenged the staff because measurement bases for liabilities had not been considered.

The staff responded that the array was an inventory of potential measurement bases for inputs. As the measurement project progresses, that inventory will be reduced as various measurement bases are eliminated as not appropriate. Some Board members responded to this clarification by saying they thought the rearrangement could be useful.

There was a brief discussion of deprival value and value in use. There seemed to be agreement between the staff and Board members that deprival value was more of a decision tree that helped to determine the appropriate measure rather than a measurement basis itself. The inclusion in the inventory of value in use was an attempt to respond to constituents, many of whom are willing to accept a mixed-measurement model, especially for operating assets.

Definitions

The staff reviewed the definitions (Observer Note 14 Appendix C). Board members had specific concerns about some aspects of the definitions, especially with respect to the extinguishment of liabilities. However, the staff attempted to reassure the Boards that future meeting papers would help to put all the possible measurement bases in context; the current exercise was an attempt to arrange the inventory in a logical order and add some discipline to it.

Some Board members were uncomfortable with some of the expressions used to describe and explain the bases, for example identifying a 'future cost/proceeds' (see item 8) seemed to confuse measurement with estimation. However, the staff encouraged the Boards to allow them to use the inventory as it had been presented.

The Board agreed.

Discussion at the July 2007 IASB Meeting - Phase C Measurement

Measurement concepts and principles

The staff noted that the Board was at the beginning of Milestone II of this phase of the Conceptual Framework project and that it had agreed to have a discussion of measurement concepts and principles at this stage. It was the intention that the measurement concepts and principles should be the first set of criteria used to evaluate the measurement basis candidates brought forward from Milestone I.

The staff noted that the paper was the first stage of an iterative process and should not be seen as the basis for immediate decisions to be reflected in the forthcoming discussion paper. It was designed to provoke a discussion-as such the Board was asked whether the definitions and approach was thought to be useful and helpful.

Opinions were sharply divided. Some thought that the staff were absolutely right to catalogue and address the issues as they had done. There is nothing substantive on measurement in the current FASB and IASB Frameworks and it was necessary to address the topic from the very foundations. Others, however, saw the exercise as needlessly academic and a recipe for unnecessarily delaying developing the discussion paper. In defence, the staff noted that much of the material in the papers presented would form part of the Basis for Conclusions rather than the concepts themselves.

The debate was lively but no decisions were reached. The staff will review their suggestions in light of the opinions and concerns expressed by Board members. The staff did not pursue a paper included in the meeting Observer Notes on the evaluation of measurement basis candidates using the proposed measurement concepts and principles.

Discussion at the November 2007 IASB Meeting - Phase C Measurement

The Board held a discussion on various aspects of the Measurement phase of the Conceptual Framework project. Staff from the FASB participated in person and by telephone.

Project phase summary

Board members discussed the project summary prepared by the staff for release on the Boards' websites. Included in this summary is an appendix listing 'definitions of measurement basis candidates', which attracted considerable comment. Some Board members were concerned that the appendix included, as 'measurement attributes', things that were not attributes but allocation methods (such as value in use); others were concerned about including candidates that, in a paper presented subsequently, it was obvious were non-starters. The staff will highlight those possible candidates for which further analysis will not be undertaken.

Project phase plan

The Board discussed a revised plan for the measurement phase up to the release of a discussion paper or preliminary views document. Included in the plan were proposals for 'collateral topics' that the staff might examine, including 'the meaning of financial position and comprehensive income'. Several Board members expressed considerable disquiet with this potential scope creep. The consensus appeared to be that the project plan should not be extended to these items. If the project plan is met, a discussion paper would be issued in late Q4 2008.

Measurement basis decision tool

The staff introduced a proposed rationale that they intend to use when assessing measurement basis candidates. The rationale would result in an 'ideal' measurement candidate in a given context with other surrogates. The Board would then be able to assess these candidates taking into account further decision criteria before setting a measurement attribute in a given standard.

Board members expressed concerns with aspects of the proposed staff approach, in particular the idea of a search for 'an ideal' measurement attribute (a search which one Board member described as 'over-zealous'). As a result, the staff agreed that they would return to a subsequent meeting (probably February 2008) with some examples of assessments of measurement attributes made using the tool.

Discussion at the November 2008 IASB Meeting

The Board discussed a paper in which the FASB staff assigned to this joint project attempted to identify factors to consider when selecting a basis for measurement after initial recognition. The paper was characterised by one Board member as a way of trying to help the Boards identify the population of measurement attributes and the criteria by which the Boards might select a particular attribute in a particular standard-setting situation.

It was apparent that Board members disagreed over what the staff paper actually said and what 'agreeing with it' implied. However, the discussions that followed these initial interventions did something to resolve the confusion.

The Board seemed to agree and support the notion that a broad categorisation of items into 'flow-dominant' and 'value-dominant' items was useful.

• Flow-dominant assets are those whose current value is generally less important than the cash flows they generate. Such assets are often used in conjunction with others to benefit the entity. If such assets were measured at current values, the cash flows and value changes attributable to them would need to be separated in the statement of comprehensive income.
• Value-dominant assets are those that will produce cash flows by being collected or sold; the flows produced are directly related to the value of those assets in market exchanges. Most liabilities are value-dominant because their values are directly related to the cash flows required to extinguish them.

Board members found these notions to be a useful base from which to make distinctions. However, one Board member noted that once the Board admitted that there was a choice of measurement attributes, it had to address the issue of management intent, but not in the notion in which that phrase is usually used currently. How management intends to use an item (for example, is a machine an item of inventory or is it used in the entity's production process?) has important consequences for the subsequent measurement of the asset. This also begs the question of what is the unit of account: the individual asset (inventory) or a group of assets (the production process)?

No decisions were made, and the staff will continue its work and report to the Boards at a subsequent meeting.

Discussion at the November 2008 IASB Meeting

The Board discussed a paper in which the FASB staff assigned to this joint project attempted to identify factors to consider when selecting a basis for measurement after initial recognition. The paper was characterised by one Board member as a way of trying to help the Boards identify the population of measurement attributes and the criteria by which the Boards might select a particular attribute in a particular standard-setting situation.

It was apparent that Board members disagreed over what the staff paper actually said and what 'agreeing with it' implied. However, the discussions that followed these initial interventions did something to resolve the confusion.

The Board seemed to agree and support the notion that a broad categorisation of items into 'flow-dominant' and 'value-dominant' items was useful.

• Flow-dominant assets are those whose current value is generally less important than the cash flows they generate. Such assets are often used in conjunction with others to benefit the entity. If such assets were measured at current values, the cash flows and value changes attributable to them would need to be separated in the statement of comprehensive income.
• Value-dominant assets are those that will produce cash flows by being collected or sold; the flows produced are directly related to the value of those assets in market exchanges. Most liabilities are value-dominant because their values are directly related to the cash flows required to extinguish them.

Board members found these notions to be a useful base from which to make distinctions. However, one Board member noted that once the Board admitted that there was a choice of measurement attributes, it had to address the issue of management intent, but not in the notion in which that phrase is usually used currently. How management intends to use an item (for example, is a machine an item of inventory or is it used in the entity's production process?) has important consequences for the subsequent measurement of the asset. This also begs the question of what is the unit of account: the individual asset (inventory) or a group of assets (the production process)?

No decisions were made, and the staff will continue its work and report to the Boards at a subsequent meeting.

Discussion at the January 2009 IASB Meeting

The Board continued its discussions of the chapter of the Framework devoted to measurement. No formal decisions were made, although the Board did give a very strong indication of its views at several points.

Careful communication of what the Board was trying to achieve in the Framework was also a theme in this discussion, particularly as many Board members had misunderstood what the staff had proposed in the agenda paper.

Reducing the number of potential measurement bases

The Board discussed a proposal that some measurement bases previously considered candidates for consideration be eliminated. The staff suggested that reducing the number of measurement bases in the Framework (assuming a mixed-basis measurement model) would simplify and thus improve the Framework. The staff proposed to eliminate the following:

• Actual or estimated past entry prices, and past estimated exit prices;
• Forecast future prices, and forecast future exit prices; and
• Value in use.

Many Board members thought that by eliminating 'past prices', the staff was suggesting eliminating historical cost accounting. The staff explained that this was not their intention. An asset or liability would be recognised initially at a current price. That initial amount might or might not be remeasured. However, trying to determine past prices or future prices was an unnecessary theoretical exercise. With this explanation and clarification, the Board agreed with the staff recommendation.

With respect to value in use, the Board agreed with a suggestion made by the US Financial Accounting Standards Board in an educational session earlier in January, that value in use be considered a present value technique and be subsumed in the other 'non-price based' measurement methods.

The Board agreed that, for the moment, the various candidates could be grouped into two broad categories: 'Actual prices' and 'Non-price amounts'. Actual prices would include actual or estimated current market entry prices and estimated current market exit prices. Non-price amounts would include 'market participant view amounts', such as fair value-based amounts (for example, those used in FAS 123R), and 'entity-specific amounts', such as value in use.

Discussion at the March 2009 IASB Meeting

Choosing between a current and a non-current measure

The Board held a lively, if inconclusive, discussion of an aspect of the measurement chapter of the proposed conceptual framework. The staff continues to develop issues for inclusion in a discussion paper. After the last Board discussion of this aspect of measurement (see November 2008 IASPlus Notes), the staff determined that 'value-flow weighting' was the primary factor to be used when distinguishing between items to be reported at 'current amounts' and items to be reported at a past transaction amount. Consequently, the staff examined this further and used it to divide the population of assets and liabilities into two subpopulations:

• Those whose value is realised directly
• Those whose value is realised indirectly

The staff also presented the view of a Board member, who had proposed an alternative view too late to be incorporated in the agenda papers. That view centred on the fact that future cash flows are fundamental to investors and that a better way to implement this idea in measurement would be to incorporate 'anticipated realisation or settlement' in that measure. This would address (a) whether there was a market for an item; and (b) whether the entity would access that market for that item. If there was no market for the item, and there were fixed or contractual cash flows, the item would be measured on the basis of those contractual cash flows. The result would be that the statement of financial position would contain measurements that reflected the cash flows the entity would expect.

The Board discussed this alternative model for a while (before they addressed the model advanced by the staff). One Board member suggested that his colleague's alternative approach put forward a measurement attribute based on management intent (or 'business model', which he sees as a synonym for management intent). Other Board members were uncomfortable discussing an alternative approach without proper documentation or analysis.

The discussion returned to the staff paper. During the discussion, the staff clarified that, in their view, financial instruments – and especially financial liabilities – would always be measured using direct measurement.

A Board member noted that the 'direct' approach resulted in a 'current measure' that was not 'fair value' as defined by the Board in the forthcoming ED on fair value measurement. Thus, an item would be measured based on current inputs for some but not necessarily all components of the item's value. He also suggested that if all of the components of the indirect measurement were done correctly, the measure derived should be the same as would be achieved under the direct method. If this was indeed the case, the staff had proposed a distinction without a difference.

Another Board member did not agree with the staff conclusions. The member thought that a 'current measure' could only be the present value of the expected future cash flows, and that this measure should always be better than an indirect measure based on historical costs. In addition, the Board member did not support layering business model/management intent considerations over the measurement attributes. Another Board member supported these concerns, especially with respect to biological assets (for which indirect, historical measures were meaningless) and investment properties (which had elements of both direct and indirect measures inherent in them).

At least one Board member disagreed with his colleagues and found the proposed staff approach useful: it matched how investors looked at a business. Items used in conjunction with other things, like employees and unrecognised intangible assets, to generate value were measured indirectly; those held for sale or realisation would be measured directly.

After much discussion, a Board member intervened suggesting that the staff needed to restructure their proposals along the following lines:

• The ideal measurement objective for all assets and liabilities should be fair value, but there are situations in which the utility or cost-benefit considerations were such that fair value would not provide useful information to users.
• To the extent that fair value is determinable it should be used.
• Point estimates of fair value (especially with respect to some liabilities) might not provide the type of information that users want or need, for example because it gives no information about variability in the outcome.
• In addition, a current measure will not convey the most useful information to investors, so another measure (other than fair value) would be necessary. It is likely that such a measure would be based in historical cost, but might not be 'pure' historical cost.
• The measurement attribute must be chosen to reflect the utility in determining future cash flows.

Discussion at the June 2009 IASB Meeting

The Board discussed a draft chapter on measurement that might form the basis of a joint IASB-FASB discussion paper. The sample chapter very basic; it did not include a basis for conclusions or other supporting material that would be included in an actual measurement chapter. In addition, the staff admitted that it did not include all the topics that the Boards might want to include in the Framework's measurement chapter.

No decisions were asked for or made, but Board members had some overall comments:

• There should be a discussion of measurement as a component of financial reporting; how the various measurement alternatives are assessed with respect to a particular asset or liability; and how measurement related to income and expense determination.
• Board members had concerns that the discussion of measurement of financial instruments might be contrary to the most recent decisions about those items, especially with respect to items that might be measured at amortised cost under the Board's forthcoming proposals on classification and measurement.
• There was no implicit ranking of the measurement alternatives, which would leave a preparer, using the measurement chapter via IAS 8, with no guidance on which of the measurement approaches was most appropriate in a given circumstance.
• The measurement chapter should not import ideas from individual IFRSs; thus rather than referring to 'Level 2' inputs, it should describe what those inputs are.

Overall, the Board thought that the sample chapter was a useful starting point, but that it could be made more succinct and direct.

Discussion at the October 2009 IASB Meeting

At that meeting the Board decided to stop work on Credit Risk in Liability Measurement as separate project and not to reach a general conclusion on credit risk at that time. Instead, the issues will be incorporated into the Conceptual Framework Measurement project.

Discussion at the December 2009 IASB Meeting

The Boards discussed an updated draft of a new measurement chapter. The Boards discussed the concepts that might be included in a discussion paper. Some Board members suggested clarifying measurement attributes, including guidance on going concern assumption as well as on the usage of alternative measurement attributes and improving articulation of the measurement concepts and their application on the Standards level. One Board member suggested that the discussion paper should not be drafted in the format of a draft chapter of the Conceptual Framework but in the form of questions to constituents on the draft conclusions reached.

The Boards also agreed to include a high level consideration of the credit risk in liability measurement in the draft chapter on measurement.