China Science

This paper analyses various controversial issues arising from the current project of the IASB; FASB to develop a joint conceptual framework for financial reporting standards. It discusses their possible implications for measurement;, in particular, for the use of fair value as the preferred measurement basis. Two competing world views are identified as underlying the debate: a Fair Value View, implicit in the IASB’s public pronouncements,; an Alternative View implicit in publicly expressed criticisms of the IASB’s pronouncements. The Fair Value View assumes that markets are relatively perfect; complete; that, in such a setting, financial reports should meet the needs of passive investors; creditors by reporting fair values derived from current market prices. The Alternative View assumes that markets are relatively imperfect; incomplete; that, in such a market setting, financial reports should also meet the monitoring requirements of current shareholders (stewardship) by reporting past transactions; events using entity-specific measurements that reflect the opportunities actually available to the reporting entity. The different implications of the two views are illustrated by reference to specific issues in recent accounting standards. Finally, the theoretical support for the two views is discussed. It is concluded that, in a realistic market setting, the search for a universal measurement method may be fruitless; a more appropriate approach to the measurement problem might be to define a clear measurement objective; to select the measurement method that best meets that objective in the particular circumstances that exist in relation to each item in the accounts. An example of such an approach is deprival value, which is not, at present, under consideration by the IASB. 2008 Accounting Foundation, The University of Sydney.

Whittington, G.Email:gw12@cam.ac.uk
Department of Financial Accounting, Centre for Financial Analysis; Policy, University of Cambridge