More than one measurement basis

Sometimes, consideration of the factors described in Measurement choices for recording transaction may lead to the conclusion that more than one measurement basis is needed for an asset or liability and for related income and expenses in order to provide relevant information that faithfully represents both the entity’s financial position and its financial performance.

In most cases, the most understandable way to provide that information is:

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Factors specific to initial measurement

Measurement choices for recording transactions discusses factors to consider when selecting a measurement basis, whether for initial recognition or subsequent measurement. Here some additional factors to consider at initial recognition are considered.

At initial recognition, the cost of an asset acquired, or of a liability incurred, as a result of an event that is a transaction on market terms is normally similar to its fair value at that date, unless transaction costs are significant. Nevertheless, even if … Continue reading

Measurement choices for recording transactions

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 flowsContinue reading

Recognition criteria

Meet the definitions

5.6 Only items that meet the definition of an asset, a liability or equity are recognised in the statement of financial position. Similarly, only items that meet the definition of income or expenses are recognised in the statement(s) of financial performance. However, not all items that meet the definition of one of those elements are recognised.

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Substance of contractual rights and contractual obligations

Accounting for something in accordance with its legal form, instead of its economic substance, does not result in a faithful representation.

  • accounting for something in accordance with its legal form (even with appropriate disclosures) cannot result in a faithful representation if the economic substance of the item is different; and
  • substance over form is an aspect of reliability.
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Limitations to financial reporting

Two clear limitations to the information provided by a general purpose financial report are materiality and cost.

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More details to present Useful Financial Information

What are more qualitative characteristics that enhance the usefulness of information that already qualifies as relevant and providing a faithful representation?

The enhancing qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are considered to provide equally relevant information and an equally faithful representation of the substance of the financial outcome of transactions in a business model.

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What is Useful Financial Information?

Or more formally: Qualitative Characteristics of Useful Financial Information

What types of information are useful to users for making decisions about the reporting entity using the general purpose financial report compiled by the reporting entity. And equally important what are the cost constraints on the reporting entity’s ability to provide useful financial information.

Some information will be more important than other information and some more important information will be easily maintained, collected and reported and other more important information will … Continue reading