AcSB staff provided a background to the project and detailed the definitions of the alternative measurement bases as follows:

Historical cost - Assets are recorded at the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the fair value of the consideration received in exchange for the obligation.

Reproduction cost - The current acquisition cost of replacing an existing asset with an identical one. On a current cost basis, a liability is recorded at the fair value of the consideration that an entity would receive if the liability had been incurred on the measurement date.

Replacement cost - The most economic current acquisition cost of replacing an existing asset with an asset of equivalent productive capacity or service potential. On a current cost basis, a liability is recorded at the fair value of the consideration that an entity would receive if the liability had been incurred on the measurement date.

Net realizable value - The estimated selling price of an asset in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The equivalent for a liability is the estimated settlement amount in the ordinary course of business plus estimated costs of settlement on the measurement date.

Value in use - The present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. A liability equivalent is the present value of the estimated cash outflows expected to be incurred in satisfying the contractual provisions of a liability.

Fair value - The amount for which an asset or liability could be exchanged between knowledgeable, willing parties in an arm's length transaction.

Deprival value - The loss that an entity would suffer if it were deprived of an asset. It is the lower of replacement cost and recoverable amount on the measurement date, with recoverable amount being the higher of value in use and net realizable value. The liability equivalent, known as relief value, is the lowest amount at which an entity could divest itself of the obligation involved.

The staff proposed a tentative conclusion that fair value has more relevance for decision-making than the alternative measurement bases and constitutes the preferrable basis for measuring assets and liabilities on initial recognition when it is reliably measurable.

Various members expressed concerns as to this conclusion. It was agreed that the document should include a discussion on impairment and on fall-back positions where fair value cannot be determined. It was agreed that the document should be issued as a discussion paper or research report with a request for public comment focusing on implications on initial measurement in certain areas.

The AcSB staff will prepare a draft of the proposed paper for review by the partner standard setters and final discussion by no later than the April 2004 meeting.