Project Update

Conceptual Framework—Measurement

Last updated on November 23, 2010. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the IASB and FASB (the Boards). It was prepared by the staff and is for the information and convenience of the Boards’ constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.

Project Objective
Due Process Documents
Decisions Reached at the Last Meeting
Summary of Decisions Reached to Date
Board/Other Public Meetings
Background Information
*Contact Information

Objective of Measurement Phase

The objective of the Measurement phase, is to provide guidance for selecting measurement bases that satisfy the objectives and qualitative characteristics of financial reporting.

Due Process Documents

The Boards held roundtable discussions on measurement during January and February 2007. The staff presented a summary of roundtable comments to the Boards in March 2007.

Summary Report
Audio Webcasts

Decisions Reached at the Last Meeting

(FASB Meeting: July 14, 2010, IASB Meeting: July 21, 2010)

The Boards reached the following tentative decisions relating to the development of preliminary views for the measurement chapter of the Conceptual Framework:
  1. Implications of the objective of financial reporting for measurement—The financial statements are complements, and all of them provide information that is useful to users of financial reports. Therefore, the best way to satisfy the objective of financial reporting through measurement is to consider the effect of a particular measurement selection on all of the financial statements, instead of emphasizing the statement of financial position over the statement of comprehensive income or vice versa.
     
  2. General implications of the fundamental qualitative characteristics for measurement—An explanation of how the fundamental qualitative characteristics of useful financial information (relevance and faithful representation) must be considered in selecting measurements should be developed within the measurement chapter. The Board discussed specific points supporting this tentative decision that will be developed further.
     
  3. Specific implications of the fundamental qualitative characteristics for historical cost and fair value—The objective of selecting a measurement for a particular item is to maximize the information about the reporting entity’s prospects for future cash flows subject to the ability to faithfully represent it at a cost that is justified by the benefits. Because neither historical cost nor fair value clearly and accurately describes the set of possible measurement methods that are to be considered, those terms should not be used in the measurement chapter.
     
  4. What should the measurement chapter accomplish—The measurement chapter should list and describe possible measurements, arrange or classify the measurements in a manner that facilitates standard-setting decisions, describe the advantages and disadvantages of each measurement in terms of the qualitative characteristics of useful financial information, and discuss at a conceptual level how the qualitative characteristics and cost constraint should be considered together in identifying an appropriate measurement. Without prescribing specific measurements for particular assets and liabilities, the measurement chapter should include cases or examples that demonstrate how the measurement chapter’s concepts might be applied.

Summary of Decisions Reached to Date

Continue to Develop Preliminary Views (May 4, 2010, Joint Meeting)

The Boards discussed a staff paper that proposed working toward a neutral Discussion Paper as the first due process document for the measurement phase of the conceptual framework project. The staff paper included possible discussion questions as well as possible alternative views with respect to those questions.

The Boards decided not to produce a neutral Discussion Paper, but rather to continue to attempt to develop preliminary views using the questions and views in the staff paper as an aid.

Draft Measurement Chapter of the Conceptual Framework
(December 16, 2009, Joint Meeting)

The Boards discussed an updated staff paper that outlined measurement concepts that might be included in a Discussion Paper. The Boards decided not to proceed with drafting a Discussion Paper yet; however, they provided additional suggestions to improve the staff paper. The Boards also considered whether and how credit risk in liability measurement could be incorporated in the staff paper.

Draft Measurement Chapter of the Conceptual Framework (June 2009)

At the June 10, 2009, meeting, the Board discussed a draft measurement chapter for the conceptual framework that is based on measurement factors the Board has discussed in earlier meetings. Those factors are:

  1. Method of value realization
  2. Cost of preparing and using measures
  3. Relative level of confidence in different measures
  4. Use of consistent measures for similar items and items used together
  5. Separability of changes in measures.
The Board decided that the measurement factors and the discussion of their relation to the objective of financial reporting and the qualitative characteristics of decision-useful information are an appropriate starting point for developing a Discussion Paper. The Board provided suggestions for clarifying and improving the ideas discussed in the draft chapter.

At the December 16, 2009, joint meeting, the Boards discussed an updated staff paper that outlined measurement concepts that might be included in a Discussion Paper. The Boards decided not to proceed with drafting a Discussion Paper yet; however, they provided additional suggestions to improve the staff paper. The Boards also considered whether and how credit risk in liability measurement could be incorporated in the staff paper.

Possible Measurement Approaches (January 2009)

On January 14, 2009, the Board discussed which possible measurement methods should be included in the conceptual framework and tentatively decided to include the following categories:

  1. Actual or estimated current prices (which will become past prices in future periods if an item is not remeasured)

  2. Actual past entry prices adjusted for interest accruals, depreciation, amortization, impairments, and similar things

  3. Other prescribed computations based on discounted or undiscounted estimates of future cash flows (which would include value in use and fair-value-based measurements, among other things).

New Approach (November 2008)

The Boards discussed the beginnings of an approach to making standards-level decisions about measurement of assets and liabilities.

The approach under consideration would address both the theoretical merits and practical limitations of different types of measurements but would not lead automatically to a decision about measurement in particular instances. It would describe the circumstances and factors that the Boards should consider when making future standards-level decisions about measurement methods.

Five factors that might be considered in selecting from among alternative measurement bases are:

  1. Value/flow weighting and separation. The relative importance to users of information about the current value of the asset or liability versus information about the cash flows generated by the item, as well as the ease and precision with which the flows can be separated from the value changes (an indication of relevance)

  2. Confidence level. The level of confidence that can be placed on alternative measurements as representations of the asset or liability being measured (an indication of faithful representation)

  3. The measurement of similar items. Items of a similar nature should be measured in similar ways (an indication of comparability)

  4. The measurement of items that generate cash flows together. Items that generate cash flows as a unit should be measured the same way (an indication of understandability)

  5. Cost-benefit. An assessment of the ratio of the benefits that would be derived from alternative measurements to the costs of preparing those measurements (an indication of the primary limiting factor in financial reporting).

The Boards did not make decisions about the individual aspects of the approach discussed, but Board members supported the general ideas and directed the staff to continue to develop the approach.

Measurement Basis Candidates (April 2007)

The Boards discussed issues related to the following primary measurement basis candidates:

  1. Past entry price
  2. Past exit price
  3. Modified past amount
  4. Current entry price
  5. Current exit price
  6. Current equilibrium price
  7. Value in use
  8. Future entry price
  9. Future exit price.

The Boards generally accepted the staff recommendations for these issues. The staff prepared a summary of the Boards’ decisions regarding the above measurement basis candidates. View the executive summary and full report.

Board/Other Public Meetings

View the FASB and IASB meeting handouts, minutes, and updates.

Background Information

The Boards expect that their joint conceptual framework project will benefit from their standard-setting projects and research being conducted by others on behalf of the Boards. Activities related to measurement include the following:

Fair Value Measurements

FASB Statement No. 157, Fair Value Measurements, defines fair value and establishes a framework for applying the fair value measurement objective in GAAP. At the September 2005 IASB meeting, the IASB added a project on fair value measurement to its agenda. The aim of the project is to provide guidance on measuring the fair value of assets and liabilities. For more information, visit IASB Fair Value Measurements Project.

*Contact Information

Ron Lott
FASB Research Director
rwlott@fasb.org

Jill Switter
FASB Project Manager
jmswitter@fasb.org

Brian North
FASB Assistant Project Manager
bnorth@fasb.org