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Measurement Objectives

Date recorded:

The purpose of the project is to identify, consider, and make recommendations with respect to issues related to the selection of an appropriate basis (or set of bases) for measuring assets and liabilities. The staff did not ask the Board to vote on the proposed issues but for comments and guidance.

Final part of the preliminary conceptual evaluation (dealing with measurement reliability)

The staff proposes that, when more than one alternative measurement basis achieves an acceptable level of reliability, the most relevant of those bases should be adopted. The Board agreed (informal vote) on this principle, however one Board member noted that the notion of relevant will have to be defined, and include a hierarchy demonstrating the notion of relevant could be used.

The first part of the comparative analysis of alternative measurement bases (dealing with fair value)

The paper distinguishes estimation uncertainty from risk-related volatility, concluding that concerns about the volatility of reported amounts under a particular measurement basis are concerns about the relevance (decision-usefulness) of that measurement basis rather than its reliability. The Board strongly supported that the notion that volatility is not a measurement principle.

Concerning the limitations on measurement reliability, the issues are:

  • whether estimation uncertainty and economic indeterminacy are the sources of those limitations, or whether there are other possible sources to consider.
  • whether the discussion in the paper provides an appropriate foundation for analysing the alternative measurement bases.
The Board agreed with the conclusion of the Staff that information about measurement uncertainty should be an essential element of financial reporting. Further, in comparing and evaluating the reliability of alternative measurement bases, consideration should be given to both:
  • the nature and extent of measurement uncertainty under each basis, and
  • the relevance and reliability of supporting information on measurement uncertainty that can be derived under each basis
However, some Board members expressed concerns on how far the user should go before giving up the fair value measurement. It has been noted that the market price is not always the fair value, and that the notion of location is crucial. Indeed, the market price is directly linked to the location of the market. Therefore, the Board asked that the notion of the location has to be included in this paper. It has been noted that this paper does not deal with gains and losses recognition.

A point outline of the comparative analysis of the other alternative measurement bases

The Board discussed the following concerns related to the fair value hierarchy:

  • fair value determinations are subject to potentially large areas of indeterminacy in some common situations on initial recognition of assets and liabilities (such as unique assets, and block discounts and premiums on shares).
  • it is questionable whether a measurement that must rely to any significant extent on entity specific assumptions can rightfully qualify to be described as 'fair value' when what the market may assume is unknowable.
  • recourse must be made to some compromising conventions or substitution of other measurement bases for fair value in order to achieve single amount measurements in situations involving significant indeterminacy.
It has been noted that this paper is very theoretical and the staff proposed to come back at the next meeting with examples to test and to improve the proposed model.

Correction list for hyphenation

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