Measurement in Financial Reporting: The Need for Concepts
Accounting Horizons, 2014, Forthcoming
Rock Center for Corporate Governance at Stanford University Working Paper No. 140
40 Pages Posted: 21 Mar 2013 Last revised: 7 Dec 2013
Date Written: December 1, 2013
Abstract
The Conceptual Framework neither specifies the objective or definition of accounting measurement, nor provides a conceptual basis for choosing among alternative measurement bases. This paper offers a starting point for developing measurement concepts based on existing Framework concepts, including the objective of financial reporting, the qualitative characteristics of useful financial information, and the definitions of assets and liabilities. The paper focuses on subsequent measurement of individual assets and liabilities and concludes that fair value measurement is more consistent with existing concepts than either modified or unmodified historical cost. Although unmodified historical cost is consistent with some concepts, modified historical cost — which is widely used today — largely is not. Also, aggregate amounts, such as total assets and total liabilities, based on modified or unmodified historical cost lack meaning. Because financial statements include such aggregate amounts and changes in amounts of individual assets and liabilities determine comprehensive income, measurements concepts also need to contemplate these measurements.
Keywords: Financial reporting concepts, measurement, standard setting
JEL Classification: M40, M41, G15
Suggested Citation: Suggested Citation
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