Canadian research paper on financial reporting measurement issues
Jun 15, 2012
The Canadian institute of Chartered Accountants (CICA) has posted to its website a reasearch paper "Toward a Measurement Framework for Financial Reporting by Profit-oriented Entities" to stimulate study and debate, and to provide input for the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB).
The paper is reasoned from fundamental premises about economic business purposes, financial reporting objectives, and the role of markets and market prices. It demonstrates that the conceptual underpinnings of financial reporting measurement can be improved at that this improvement is definitely needed.
The paper envisages profit-oriented (business) entities as processes for transforming market input values into market output values. This leads to the conclusion that market values should be expected to play a critical role in financial reporting measurement theory.
A definition of current market value is put forward that embodies a set of properties that make it a most relevant measure of assets and liabilities for financial reporting purposes. Other measurement bases are evaluated as possible substitutes when current market value is not practicable of faithful representation.
The approach proposed in the paper would have major implications for financial reporting measurement and the paper endeavours to identify and address the most fundamental of these implications.
Ultimately, the paper is intended as input to the IASB/FASB Conceptual Framework project (Phase C – Measurement). Even though the overall Conceptual Framework project is currently paused, it is expected that the project will be re-activated as a result of the IASB's Agenda consultation 2011.
The paper is available for download through the press release on the CICA website. Comments are requested by 30 November 2012. In addition to the possibility of providing formal comments on the paper, the author has set up a blog to encourage open discussion of the paper and financial reporting measurement issues generally : http://measurementframework.blogspot.ca/.