Need for accounting measurement the big 1

Need for accounting measurement

Need for accounting measurement provides a summary of the measurement bases in use in Financial Reporting
and the concepts behind these measurement bases.
The measurement bases that will be considered here are

All these bases are forms of accrual accounting – that is, they are intended to measure income as it is earned and costs as they are incurred, as opposed to simply recording cash flows. The last four are all forms of current value measurement.

In forming a judgment on the appropriateness of measurement bases, in literature, the overriding tests has been identified to be their cost-effectiveness and fitness for purpose. However, in the absence of direct evidence on these matters, it is usual to argue in terms of various secondary characteristics that ought to be relevant in assessing the quality of information (see the key indicators in What is useful information?).

The most important of these characteristics are generally considered to be relevance and faithful representation / reliability (older term).

For each basis, an outline is given of how it works and the relevance and faithful representation of the resulting measurements. The question of measurement costs is also considered briefly. In reading the analyses that follow, the following comments should be borne in mind.

Bases of measurement in financial reporting are not carved in stone. Different people have different views on how each basis should work, and meanings evolve as practice changes. Some readers may therefore find that the way a particular basis is described does not match how they understand it.

This does not mean either that their understanding is wrong or that the description in the report is wrong; views on these things simply differ.

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Related IFRS posts

Summary information provision by measurement bases

Summary information provision by measurement bases Summary information provision by measurement bases

Use the hyperlinks to get more information, this is the table 6.1 from chapter 6 Measurement of the Conceptual Framework 2018.

Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognised and reported.

The IFRS Framework acknowledges that a variety of measurement bases are used today to different degrees and in varying combinations in financial statements, including:

  • Historical cost Summary information provision by measurement bases
  • Current cost Summary information provision by measurement bases
  • Net realisable (settlement) value Summary information provision by measurement bases
  • Present value (discounted) Summary information provision by measurement bases
Summary of information provided by particular measurement bases
Statement of Financial Position
Assets
Event
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Disclosure innovations in financial reporting

Disclosure innovations in financial reporting – This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

In the Netherlands formal legislation concerning financial reporting was introduced rather late in the early 1970s. The lack of formal legislation was a stimulants to applying innovative financial reporting disclosures, bluntly said ‘anything was possible’ there were no legal minimum levels.

This part is based on a research overview by Camfferman (1996) in his paper ‘Voluntary annual report disclosure by listed Dutch companies, 1945 – 1983’. Camfferman’s work identifies 9 disclosure items. The nine disclosure innovations are discussed in here.

(1) Disclosure of Sales Disclosure innovations in financial reporting

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