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Conceptual Framework Phase C — Measurement

Date recorded:

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.