Conceptual Framework Phase C — Measurement
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.