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Conceptual framework — Measurement

Date recorded:

Measurement chapter

At the May 2010 joint meeting the Board decided to continue to develop preliminary views in the measurement phase of the Conceptual Framework project rather than produce a neutral discussion paper. The Board was presented with three questions posed in the May paper as the staff believes that these questions are the most important.

[The staff had a separate meeting with the FASB to consider these questions prior to the meeting with the IASB and the FASB views were highlighted throughout the discussion]

1. What are the implications of the objective of financial reporting for measurement?

The Board was reminded that the objective of financial reporting is the foundation of the Conceptual Framework and thus, the concepts and guidance of the measurement chapter should logically flow from that objective.

The staff presented three possible views of the implications for measurement of the objective of financial reporting. These views are expressed in terms what the best way is to maximize information for investment and credit decisions:

  • View A: The balance sheet view - the selection of measurements for assets and liabilities that faithfully represent the entity's wealth with respect to those assets and liabilities;
  • View B: The income statement view - the selection of measurements for assets and liabilities that result in persistent information about accrual-basis cash flows in the statement of comprehensive income;
  • View C: The holistic view - consider information that would result in both statements from selecting a particular measurement for an asset or liability, or groups of assets or liabilities.

 

A large majority of Board members were supportive of View C, albeit for different reasons. In general, these Board members considered View C consistent with the Board's view in the objective chapter that the statement of financial position and statement of comprehensive income are equally important and that one does not take prominence over the other.

Several of Board members were of the opinion that the views have not been articulated well and that descriptions and rationalisation of the alternative views were not neutral and objective. The staff acknowledged that the views were only articulated in order to obtain preliminary thoughts on and that they will be developed further based on the comments received from the Board.

The staff indicated the FASB were unanimous in their support for View C.

2. What are the general implications of the fundamental qualitative characteristics of useful information for measurement?

The Boards considered two alternatives for the measurement chapter to built on fundamental qualitative characteristics of relevance and representation.

  • View A: No additional discussion is needed about what the qualitative characteristics might imply for measurement;
  • View B: An explanation of how relevance and faithful representation relate to measurement would be useful.

 

The Board members expressed very strong support for View B, although they were not all supportive for the explanations listed in the agenda paper. It was agreed that editorial suggestions would be discussed offline with the staff.

The staff indicated that the FASB was also supportive of View B. The staff also pointed out that the FASB was concerned that one of the explanations may create the impression that the selection of measurement bases related to the entity's business model. The Board agreed that the point should be clarified.

3. What should the measurement chapter accomplish?

The Board was presented with five alternatives with View A being the most basic specifications and each alternative thereafter, building onto the specifications of the previous alternative.

A Board member started the discussion with noting that the measurement chapter should not be neutral (view A), but should also not specify which assets and liabilities should be measured using a specific basis (view E). Most Board members were either supporting View B (discussing the relationship between qualitative characteristics and measurement bases on a conceptual level) or View C (expanding on view B by prescribing a hierarchy of measurement bases). One Board member was concerned that view C would 'box in' the Board with regards to future assets and liabilities and how they should be measured. Other Board members agreed that measurement should be based on principles and that the measurement chapter should not be too prescriptive. This was the main objection against view C.

The Chairman brought the discussion to an end by summarising the all Board members were completely in view B, but leaning towards view C. The staff indicated that the FASB was in the same position.

The staff indicated that they will take all the comments and recommendations on board and use view B as the starting point for the measurement chapter and incorporate some of the 'good' points of the other views, especially view C, in their analysis.