Tuesday, May 26, 2009

Standard-setting measurement issues and the relevance of research Mary E. Barth

1. Introduction
Measurement is a key aspect of financial reporting.
This paper explains my views, as a standard
setter and a researcher, on how the International
Accounting Standards Board (IASB) approaches
standard-setting measurement issues, the measurement
bases it and other standard setters commonly
consider, and how research can contribute to resolving
standard-setting issues related to measurement.
The IASB approaches measurement issues in the
same way as it approaches other standard-setting
questions. That is, the IASB attempts to apply its
conceptual framework, which is specified in its
Framework for the Preparation and Presentation
of Financial Statements (Framework, IASC,
1989). Other standard setters also base standardsetting
decisions on their conceptual frameworks.
For example, the conceptual framework of the US
standard setter, the Financial Accounting
Standards Board (FASB), is specified in its
Statements of Financial Accounting Concepts
(SFAC) Nos. 1, 2, and 5–7 (FASB, 1978, 1980,
1984, 1985, and 2000).1 Despite its importance,
measurement has received relatively little attention
in the conceptual frameworks of financial reporting
standard setters. Thus, in making
measurement decisions, standard setters usually
focus on applying the definitions of financial statement
elements and the qualitative characteristics
of accounting information in the context of the objective
of financial reporting. The definitions identify
what is to be included in the measurement, the
qualitative characteristics identify the desired
characteristics of the measurement, and the objective
of financial reporting identifies the context in
which the measurement should be evaluated.
Application of those concepts has resulted in a
variety of measurement bases being used to measure
financial statement amounts. These include
historical cost, amortised historical cost, fair value,
and value in use, among others.2 Each basis has
advantages and disadvantages relative to the others
in meeting the conceptual framework criteria.
However, a review of the recent activities of the
IASB reveals that the use of fair value in financial
reporting is likely to increase. This is because as
the board has debated particular measurement
questions, it has concluded that in some cases fair
value meets the conceptual framework criteria better
than other measurement bases considered. It is
not because the board has a stated objective of
changing accounting measurement to fair value for
all assets and liabilities. Fair value is not a panacea
and other measurement bases also have desirable
characteristics. Thus, which basis the IASB will
require in any particular situation is not a foregone
Research can be helpful to standard-setting debates
about measurement. This is because research
is generally rigorously crafted and grounded in
economic theory. Also, because academics do not
have a stake in the outcome of the research, research
typically is unbiased. Relating specifically
to measurement, research can provide insights into
how alternative measurement bases, in a variety of
contexts, meet the criteria in the conceptual framework,
such as relevance and faithful representation.
Researchers also can question the current
framework by rethinking the objective and characteristics
of financial reporting and, if necessary,
offering an alternative framework that comprehensively
meets the objective and evidences the desired
characteristics. Research also can identify
measurement alternatives to fair value that can be
used on a comprehensive basis. Relating to fair
value measurement itself, research can help link
valuation theories to the real world in which we
live. Such research would aid standard setters, for
example, in determining which assumptions underlying
the valuation theory are most important
and those that can be ignored. For example, most
valuation theory relies on perfect and complete
markets – or at least markets with no arbitrage opportunities.
Without these market features, a single
value for every asset and liability does not exist.
But, by how much does the observed inconsistency
with each of these assumptions affect the
resulting value estimates? Is it enough to be concerned
about from a practical perspective? There is
much to learn about accounting measurement and
research can aid standard setters in identifying the
issues they need to address, helping them structure
their thinking about the issues, and providing evidence
that informs the debate about the issues.
The paper proceeds as follows. Section 2 explains
how the IASB approaches measurement issues,
and attempts to dispel some common
misunderstandings. Section 3 discusses why the
IASB has increasingly focused on fair value and
identifies some of the possible alternatives.
Section 4 suggests some ways in which research
can inform standard-setting measurement issues.
Section 5 offers concluding remarks.

2. How do standard setters approach

2.1. Conceptual framework

As with any standard-setting decision, when
making decisions relating to accounting measurement,
the IASB strives to follow its Framework.
Unfortunately, the current Framework does not include
much guidance on measurement. It simply
lists examples of measurement bases, such as historical
cost and settlement value, and measurement
techniques, such as present value, that are currently
used in financial statements.3 It does not identify
their key attributes or provide criteria for
selecting among them, and it does not list all possible
measurement bases that the board should
consider. Thus, when applying the Framework to
measurement questions, the IASB focuses on determining
which measurement basis best meets the
objective of financial reporting, the elements definitions,
and the qualitative characteristics of accounting
information. The objective of financial
reporting sets the context for evaluating the measurement,
the definitions identify what should be
measured, and the qualitative characteristics identify
the desired characteristics of the measurement.
The treatment of measurement in the FASB’s conceptual
framework, specifically SFAC 5, is similar
to that in the IASB’s Framework. Thus, the present
joint IASB/FASB conceptual framework project
includes a separate phase on measurement
aimed at developing concepts relating to measurement
in financial reporting.4
At the present time, the first two chapters of the
converged IASB/FASB framework, comprising
the first phase, have been exposed as a preliminary
views document for public comment. These chapters
cover the objective of financial reporting and
the qualitative characteristics of accounting information.
Because the boards believe that these two
exposed chapters represent clarification of the current
frameworks, not conceptual changes, this
paper uses the proposed revised and clarified
wording when discussing objective of financial reporting
and the qualitative characteristics of accounting
information. Much of the discussion in
this section is taken directly from the preliminary
views document (IASB, 2006a).
The objective of financial reporting is ‘to provide
information that is useful to present and potential
investors and creditors and others in making
investment, credit, and similar resource allocation
decisions.’ (IASB, 2006a, para. OB2). The term
‘investors’ refers to present and potential equity
holders and their advisers, and the term ‘creditors’
refers to present and potential lenders and their advisers.
The resource allocation decisions of these
users include determining whether to buy, sell, or
hold equity securities and whether to lend funds to
or call existing debt issued by the entity. Despite
the fact that equity investors, particularly, and
creditors are interested in estimating the values of
the entity and its equity, it is not the objective of financial
reporting to provide such estimates.
Rather, the objective of financial reporting is to
meet the information needs of a wide range of
users in making a wide range of economic decisions,
which are not limited to those dependent on
estimates of entity or equity value.
The objective of financial reporting focuses on
these users based on the belief that meeting their
needs will meet the needs of other financial statement
users. For example, as the preliminary views
document points out, consistent with the current
IASB Framework, ‘users of financial reports wishing
to assess how well management has discharged
its stewardship responsibilities are generally interested
in making resource allocation decisions…
Decisions about whether to replace or reappoint
management, how to remunerate management,
and how to vote on shareholder proposals about
management’s policies and other matters are also
potential considerations in making resource allocation
decisions…’ (IASB, 2006a, para. OB28).5
The objective of financial reporting affects measurement
decisions because it establishes the context
for assessing the qualitative characteristics of
accounting information, including accounting
The qualitative characteristics of accounting information
in the preliminary views document
(IASB, 2006a, ch. 2) are relevance, faithful representation,
comparability, and understandability.
Relevant information is capable of making a difference
to a financial statement user’s decisions.
Relevant information has predictive value, i.e., it
helps users to evaluate the potential effects of past,
present, or future transactions or other events on
future cash flows, and confirmatory value, i.e., it
helps to confirm or correct their previous evaluations.
Making the information available to users
before it loses its capacity to influence their decisions,
i.e., timeliness, is another aspect of relevance.
Faithful representation means that the
information reflects the real-world economic phenomena
that it purports to represent. Real-world
economic phenomenon are economic resources
and obligations and the transactions or other
events that change them. Accounting constructs
that are the creation of accountants, such as deferred
charges, are not real-world economic phenomena
(IASB, 2006a, para. QC18). Neither are
results of calculations, in themselves. Components
of faithful representation include verifiability, i.e.,
different knowledgeable and independent observers
would reach general consensus, neutrality,
i.e., freedom from bias intended to attain a predetermined
result or to induce a particular behavior,
and completeness, i.e., all of the information that is
necessary for a faithful representation is included.
As the preliminary views document explains, the
qualitative characteristics are subject to two pervasive
constraints, materiality and benefits that justify
the costs. Information is material if its omission
or misstatement could influence the resource allocation
decisions users make. It is a pervasive constraint
on the information to be included in an
entity’s financial report rather than a qualitative
characteristic of accounting information. The benefits
and costs contemplated in the Framework
are broad. The benefits of financial reporting information
include better investment, credit, and
similar resource allocation decisions, which in turn
result in more efficient functioning of the capital
markets and lower costs of capital for the economy
as a whole. Costs include direct and indirect costs
incurred by both preparers and users of financial
statement information, as well as by auditors and
regulators. Assessing whether the benefits exceed
the costs is inherently subjective because it is not
possible to obtain quantitative data on all costs and
benefits. However, the requirement to assess benefits
and costs means that in setting standards, the
IASB needs to consider practicality as well as concepts.
Comparability, which includes consistency, is
the quality of information that enables users to
identify similarities in and differences between
two sets of economic phenomena. That is, it is undesirable
if similar transactions, events, or conditions
look different or if different transactions,
events, or conditions look alike. Consistency helps
achieve comparability because it refers to the use
of the same accounting policies, either from period
to period within an entity or in a single period
across entities. Understandability is the quality of
information that enables users who have a reasonable
knowledge of business and economic activities
and financial reporting, and who study the
information with reasonable diligence, to comprehend
its meaning.
When making measurement decisions, the IASB
also takes into consideration the Framework definitions
of assets and liabilities:
• An asset is a resource controlled by the entity as
a result of past transactions and events and from
which future economic benefits are expected to
flow to the entity.
• A liability is a present obligation of the entity
arising from past events, the settlement of which
is expected to result in an outflow from the entity
of resources embodying economic benefits.
These definitions specify the real-world economic
phenomena that accounting should measure,
even though they do not specify how to
measure them. In particular, the definitions make
clear that not all expected inflows and outflows of
economic benefits are assets and liabilities for financial
reporting purposes.

2.2. Common misunderstandings

There are several common misunderstandings
about how the IASB approaches measurement decisions.
6 First, the Framework does not identify
conservatism as a qualitative characteristic of decision-
useful financial information. Conservative
amounts are not neutral, which is a qualitative
characteristic. As noted in Section 2.1, neutrality
means freedom from bias. Conservatism implies a
negative bias for assets and income and a positive
bias for liabilities and expenses.7 Some argue that
because, historically, accounting amounts have
been conservative, accounting amounts are useful
for purposes beyond those anticipated by the objective
of financial reporting, e.g., debt contracting
(Watts, 2003). However, the fact that accounting
amounts have been used for this purpose does not
imply that such use should affect standard-setting
decisions in the context of the stated objective of
financial reporting.8
Second, matching is not a separate concept in the
Framework. This is because matching is not an objective
of accounting recognition or measurement,
per se. Rather, it is an outcome of applying the
other concepts. That is, the Framework is based on
the notion that if assets and liabilities are appropriately
recognised and measured, profit or loss will
be too, which obviates the need for a separate concept
of matching. Although the existing Framework
(IASC, 1989 para. 95) discusses the concept of
matching income and expenses, the discussion
ends by stating ‘However, the application of the
matching concept under this Framework does not
allow the recognition of items in the balance sheet
which do not meet the definition of assets or liabilities.’
Thus, matching per se cannot be used to
justify income or expense recognition that is inconsistent
with the definitions of assets and liabilities.
Third, the term reliability as used in the current
Framework is neither limited to verifiability, as
some interpret it, nor does it mean precision. It
means faithful representation of the real-world
economic phenomenon it purports to represent.
This common misunderstanding is why the preliminary
views document (IASB, 2006a) uses the
term ‘faithful representation’ rather than ‘reliability’
and explains that just because an amount can be
calculated precisely, it is not necessarily a faithful
representation of the real-world economic phenomenon
it purports to represent. Faithful representation
implies neither absolute precision in the
estimate nor certainty about the outcome.
Fourth, the objective of financial reporting does
not include providing accounting information for
management to use in managing the business or
for contracting parties to include in contracts. This
is because these users can directly specify the information
they want and need. IASB standards are
designed for general purpose financial reports,
whose objective stems from the information needs
of external users who lack the ability to prescribe
all the financial information they need from the entity.
This is not to say that measures used for financial
reporting are not useful for managing the
business or contracting purposes. But, if they are,
this is a by-product, not an objective, of external
general purpose financial reports.
Fifth, the Framework focuses on defining financial
position elements, i.e., assets and liabilities,
not because financial position is more important
than profit or loss. Rather, it is because profit or
loss is important. Defining financial position elements
is the only way standard setters have been
able to determine how to measure revenues and
expenses, which comprise profit or loss. To date,
attempts to define revenues and expenses without
reference to assets and liabilities have been unsuccessful.
This approach also is consistent with the
concept of economic income being the change in
wealth during the period (Hicks, 1946).
Sixth, the IASB does not have an objective to
measure all assets and liabilities at fair value. As
explained in Section 3, there are reasons why fair
value is a candidate measurement basis in many
situations, and the IASB and FASB have a stated
long-term objective to measure all financial assets
and liabilities at fair value. However, there is no
similar objective to measure other assets and liabilities
at fair value.
3. Which measurement basis?
3.1. Fair value
Observation of IASB deliberations reveals that it
considers fair value as a possible measurement
basis in many situations. A primary reason for this
is that the Framework criteria make fair value a
natural measurement basis to consider. First, fair
values are relevant because they reflect present
economic conditions relating to economic resources
and obligations, i.e., the conditions under
which financial statement users will make their decisions.
9 Also, research shows that fair values have
predictive value (see, e.g., Barth et al., 1995;
Aboody et al., 1999).10 Second, fair values can be
faithful representations of assets and liabilities, as
defined in the Framework, because they reflect
risk and probability-weighted assessments of expected
future cash inflows and outflows. Fair values
are unbiased and, thus, neutral. Fair values are
timely because they reflect changes in economic
conditions when those conditions change (see,
e.g., Barth et al., 1996; Barth et al., 1998; Aboody
et al., 1999). Third, fair values are comparable because
the fair value of any particular asset or liability
depends only on the characteristics of the
asset or liability, not on the characteristics of the
entity that holds the asset or liability or when it
was acquired. Fair values enhance consistency because
they reflect the same type of information in
every period.11
Despite these advantages, fair value measurement
is not a panacea. Some commonly expressed concerns
include lack of a clear definition of fair value,
lack of verifiability, the ability for management to
affect fair value estimates, and the potential circularity
of reflecting fair values in financial statements
when the objective is to provide financial statement
users with information to make economic decisions
that include assessing the value of the entity.
Regarding the definition of fair value, the IASB
defines fair value as ‘the amount for which an
asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s
length transaction’ (IAS 39 para. 9; IASB, 2004).
Although this definition states the measurement
objective, it lacks sufficient specificity to ensure
consistent application. Because of similar problems
in US accounting standards, the FASB issued
Statement of Financial Accounting Standards
(SFAS) No. 157 (FASB, 2006), which provides a
more precise definition of, and specifies how to estimate,
fair value. The IASB has on its agenda a
fair value measurement project, and issued SFAS
157 as a discussion document as the first step in
the project’s due process. Until the IASB completes
its fair value measurement project, the concerns
about lack of specificity are valid for entities
applying international accounting standards; SFAS
157 has mitigated these concerns for entities applying
US standards.
Regarding verifiability of fair value, verifiability
is a component of faithful representation. The concern
over verifiability of fair value often is expressed
in relation to assets and liabilities that do
not have observable market prices. For such assets
and liabilities, fair value must be estimated, which
raises the possibility that the estimates will not be
verifiable. As explained in section 2.1, information
is verifiable if different knowledgeable and independent
observers would reach general consensus,
although not necessarily complete agreement.
IASB (2006a) explains that verification can be direct
or indirect. Indirect verification involves determining
whether the measurement method has
been applied without material error or bias, and relies
on verifying the inputs to the measurement
method. Direct verification relies on verifying the
measurement itself. Thus, fair values may not be
verifiable in some situations if many inputs to the
measurement method are not verifiable.
Regarding management affecting fair value estimates,
the effect of management incentives on fair
value estimates is also of concern primarily when
observable market prices are unavailable. The fact
that fair value estimates incorporate and, thus, reflect
managers’ detailed information that is not
necessarily available to others is a desirable aspect
of fair value. Reflecting such information in financial
statements mitigates the need for market participants
to develop noisy estimates based only on
public information. Nonetheless, the concern
about the effects of management incentives is
valid. But, it is not unique to fair value. A large
body of research shows that managers find ways to
manage earnings regardless of the accounting
regime.12 Whether this is a greater potential problem
for fair values than for other accounting estimates
is an open empirical question (see, e.g.,
Landsman, 2006).
Finally, regarding potential circularity, it is unlikely
that even if all recognised assets and liabilities
were measured at fair value, recognised equity
would equal the market value of equity. This is because
only assets and liabilities that meet the
Framework definitions are candidates for recognition.
Market value of equity reflects investors’ assessments
of, among other things, growth options
and managerial skill that do not meet the asset definitions.
Also, in most cases, the market used to estimate
fair value for individual assets and
liabilities is not the market for the entity’s equity.
However, in some cases, such as major business
combinations or for single reporting unit entities, it
could be.
Another reason that the IASB considers fair
value in most measurement situations is that its use
holds promise for minimizing the undesirable effects
of the mixed measurement approach to financial
reporting that we have today.13 Presently,
financial statement amounts are determined using
a variety of measurement bases. These include, for
example, historical cost (used for cash), amortised
historical cost (used for loans receivable and longterm
debt), impaired amortised historical cost
(used for purchased property, plant, and equipment),
accumulated amortised and impaired historical
cost (used for self-constructed property,
plant, and equipment), fair value (used for derivatives
and asset revaluations), and entity-specific
value (used for impaired inventories and impaired
property, plant, and equipment).14 These differences
in measurement bases do not result from differences
specified in the Framework. Rather, they
result from conventions and differences in practice
that have evolved over time. Thus, when viewed in
terms of the Framework, these differences generate
financial statements that are internally inconsistent.
Not only is use of multiple measurement
bases conceptually unappealing, but also it creates
difficulties for financial statement users.
Measuring financial statement amounts in different
ways complicates the interpretation of accounting
summary amounts such as profit or loss.
Using multiple measurement bases makes it difficult
for financial statement users to separate accounting-
induced income or expense from
economic income or expense (see, e.g., Barth,
2004). Thus, fair value applied comprehensively
has appeal.

3.2. Alternatives to fair value

Although opponents of more comprehensive use
of fair value have some legitimate concerns, standard
setters are unaware of a plausible alternative.
Some opponents advocate historical cost.
However, we do not comprehensively use historical
cost in financial statements today. Items initially
recognised at cost typically are subsequently
measured at amortised and impaired amounts;
these are not historical cost. Thus, one would need
to specify how these items should be measured
subsequent to initial recognition. Also, it is unclear
whether historical cost has the qualitative characteristics
of accounting information specified in the
Framework. For example, although historical cost
is a real-world economic phenomenon and, thus,
an historical cost measure can be a faithful representation,
historical cost may not be a relevant
economic phenomenon for users making economic
decisions. However, cost is not always clearly
identifiable, for example for self-constructed assets
or assets acquired in a basket purchase, which
raises verifiability concerns. Also, the present convention
of recognising decreases in asset values,
i.e., impairments, but not increases in asset values,
is inconsistent with neutrality. Moreover, some assets
and liabilities have no cost – notably derivatives.
This raises the question of how such assets
and liabilities would be reflected in historical cost
financial statements without either leaving them
unrecognised or creating a mixed measurement
Value in use, or entity-specific value, is another
possible measurement alternative.15 Value in use
requires including future cash flows that the entity
expects to receive, discounted at a rate that perhaps
reflects the entity’s cost of capital, even if
these differ from those of other entities. Thus, entity-
specific value differs from fair value in that
entity-specific value includes cash inflows or outflows
expected by the entity that would not be expected
by other market participants, such as
expected inflows related to superior management
talent.16 Thus, entity-specific value can result in
embedding the measure of an intangible asset, e.g.,
superior management talent, in the measure of another
asset, e.g., property, plant, and equipment.
As with all measurement bases, measuring assets
and liabilities at entity-specific value also has implications
for profit or loss measurement. Because
entity-specific value measures, assets and liabilities
are based on what the entity expects to accomplish
with the assets, the value of the entity’s
special rights or skills are recognised when the assets
are recognised, not when the entity realises the
benefits associated with those special rights or
skills. Thus, profit or loss resulting from using entity-
specific value for asset and liability measurement
would reflect how the entity performed
during the period given the assets at its disposal
relative to its own expected performance based on
its plans and special rights or skills. In contrast,
using fair value would result in profit or loss reflecting
how the entity performed during the period
given the assets at its disposal relative to other
market participants’ expected performance. If the
entity makes better use of the assets, profit will be
greater than the return expected based on the risk
of its net assets; if it makes worse use of the assets,
profit will less than the expected return.17
It could be possible to decouple financial position
measurement from profit or loss measurement.
This would eliminate the need to consider
the profit or loss effects associated with a particular
asset and liability measurement basis. To date,
standard setters have been unsuccessful in developing
concepts about how this would be done.
Thus, those advocating this approach need to provide
a conceptual basis for doing so.
There could be other alternatives that standard
setters should consider. They are open to ideas.
However, before adopting one of those ideas, standard
setters need to understand the conceptual
basis for the idea, and how it could be applied
comprehensively in financial reporting.

4. How can research contribute?

Measurement is key to financial reporting. Thus, it
is important that standard setters base their decisions
relating to measurement on the best possible
information. Some believe that research cannot be
relevant to standard-setting issues. It is wellknown
that empirical research cannot directly answer
standard-setting questions (see, e.g., Gonedes
and Dopuch, 1974; Beaver, 1998). This primarily
is because accounting standards and the results of
their implementation are public goods. That is, one
entity’s use of the standards does not diminish the
benefits that can be derived by another entity’s use
of the standards. Also, there are externalities. That
is, there are benefits and costs associated with accounting
standards and financial reporting that are
not enjoyed or borne by only those entities that
enjoy or bear direct benefits or costs. However,
there is no market or other mechanism that aggregates
all of these benefits and costs. Thus, standard
setters must determine how to make any social
welfare trade-offs necessary when establishing the
requirements in a standard. Because empirical research
typically relies on markets and other aggregation
mechanisms, such research cannot be used
to determine what the requirements of any particular
standard should be.
Others believe that research can provide insights
into standard-setting issues. It can do so, for example,
by operationalising criteria standard setters
establish for deciding among alternatives when developing
standards, such as relevance and faithful
representation. Because these criteria are specified
in the conceptual frameworks of the FASB and
IASB, researchers need not specify the objective
functions of standard setters. Standard setters are
potentially interested in research of all types because
they actively seek input on all of the issues
they consider; research can be particularly helpful
because it is unbiased, rigorously crafted, and
grounded in economic theory.18 Thus, research can
aid standard setters in identifying issues, structuring
their thinking about a particular issue, and providing
evidence that informs the debate about the
issue (see Barth, 2006 for a more complete discussion
and for examples of research that does this;
see also Landsman, 2006).
Relating specifically to accounting measurement,
research can provide insights into whether
and the extent to which various measurement
bases, in various contexts, meet the qualitative
characteristics of accounting information specified
in the Framework. It also can help determine
which real-world economic phenomena are relevant
to financial statement users. There is a large
body of financial accounting research, particularly
empirical capital markets research, described as
adopting a measurement perspective (Beaver,
1998) that does this; more is needed.19 Because
faithful representation is a key concern for any
measurement, and no representation is perfect, research
providing insights into how faithful is faithful
‘enough’ would be helpful. Such research aids
standard setters in making measurement decisions
in the context of their own criteria.
Research also can explore comprehensive finan-
cial reporting measurement alternatives to fair
value. As noted above, many have concerns with
using fair value as the measurement basis in a variety
of situations but there is no clear alternative
under consideration. Standard setters would like to
understand why the alternative is better in terms of
meeting the objective of financial reporting and
the qualitative characteristics of accounting information.
They also would like to understand how
the alternative would apply to various types of assets
and liabilities and what it implies for profit or
loss measurement.
Fair value is a measurement basis even for assets
and liabilities that do not have observable market
prices. Thus, standard setters would find helpful
research that relates valuation theory to the imperfect
and incomplete world in which we live.
Accountants must become more comfortable with
valuation theories, techniques, and practicalities.
Simply saying that valuation theory does not fit all
aspects of the real world is not helpful. Research
identifying how the differences between the assumptions
underlying the theory and the real world
can be addressed, would be helpful. Such research
would highlight where problems arise, identify
which failed assumptions are most important and
which can safely be ignored, and provide insights
into how standard setters should think about dealing
with the problems.
Research also can suggest alternatives to the current
Framework. Researchers could use economic
and finance theory to aid standard setters in rethinking
financial reporting and, thus, the criteria
in the Framework. This would include suggesting
changes to the objective of financial reporting, the
qualitative characteristics of accounting information,
and the elements definitions that comprise an
alternative financial reporting regime. This could
lead to considering alternative measurement bases.
Researchers are perhaps the best persons to do this
because it is a conceptual exercise that requires
new thinking not hampered by past practices.

5. Conclusion

Many standard-setting decisions relate to accounting
measurement. The IASB bases its measurement
decisions on its conceptual framework.
Unfortunately, the present framework contains virtually
no guidance on measurement. The IASB
and FASB are presently conducting a joint project
to complete, converge, and improve their conceptual
frameworks. One phase of that project is devoted
to measurement. However, until that phase
is complete, the IASB must continue to base its decisions
on the definitions of assets and liabilities
and its assessment of the qualitative characteristics
of accounting information, in the context of the
objective of financial reporting. The lack of guidance
specific to measurement in the conceptual
framework means that measurement issues are
likely to continue to be difficult to resolve.
Because measurement is vital to financial reporting,
the issues are also likely to be controversial.
Observation of IASB standard-setting deliberations
reveals that use of fair value as a measurement
basis is likely to increase. This is because as
the board has debated particular measurement
questions, it has concluded that in some cases fair
value meets the conceptual framework criteria better
than other measurement bases considered. It is
not because the board has a stated objective of
changing accounting measurement to fair value for
all assets and liabilities. Fair value is not a
panacea, and other measurement bases also have
desirable characteristics. Also, standard setters’
cost-benefit assessments can differ depending on
the issue at hand. Thus, which basis the IASB will
require in any particular situation is not a foregone
Researchers can help the IASB resolve these issues
at the conceptual and practical levels.
Research is particularly valuable to standard setters
because it is unbiased, rigorously crafted, and
grounded in economic theory, as is the conceptual
framework. Research can aid standard setters by
identifying issues they need to address related to
measurement, structuring their thinking related to
those issues, and providing evidence that informs
their debate about the issues. Relating specifically
to fair value as a measurement basis, research can
provide more evidence on the extent to which
fair value meets the criteria specified in the
Framework. It also can help relate valuation theory
to accounting measurement in the incomplete
and imperfect world in which we prepare financial
The time has come to resolve measurement issues
in financial reporting.

Tuesday, March 03, 2009

Week 1 IE

And it starts. The clock currently sits at, and i am FEAKING OUT. We have after exhaustive effort made groups and i am so glad with the people I have ended up with. This being my fourth year i was worried about not knowing the skill sets of the other people. But thankfully I have worked with both Evan and Ryan in separate units and am confident that we have both the drive and ability to effectively complete this project.

I have so many worries about this unit. I work part time (23 hours) and study full time. When I’m not at uni I’m at work. I do 12 hour days as it is and I can already see how time consuming this project will be. To think that it will last a whole year is crazy. This is such a huge commitment, and not only my grades but that of the other team members are sitting on my shoulders. And that is a hefty burden to consider. I am thankful to know I am not the only person in this position. Most of my team members are in the same boat, which gives me relief because they understand my time constraints, but it also worries me because we are so handicapped by the maximum amount of hours that can be put into this project each week.

I have obviously known about the industrial experience project and what it entails since i started this course. In my previous years i have considered which role i thought i would play in the group. I’m normally the person in a group who ends up just doing it all because everyone else just slacks off. Having doing programming units and seeing how so many people struggle with it, i figured i would naturally be placed in that role. I think I’m a very good programmer, as I’m always the person who helps others in previous units. We came in today and the people i have chosen i believe, like myself, are all rounders. So when we were discussing the roles each person would play i said (in contrary to what i previously thought over the past few years) that i would be happy to do whatever was needed, which in this case was documentation.

I am happy to go along with this as I feel that the roles we have assigned ourselves don't really mean much. I believe the project manager and client liaison roles should be fixed unless they are not able to perform it adequately. Apart from them i think Evan, Ryan and myself will simply switch in and out of each of the other roles. The analysis, design, documenting, programming and testing of this project are HUGE roles and the time frame for each process to be completed will be so short that the group will have to take on the mentality of 'all hands on deck' to nut everything out.

I am excited, but oh so very scared!

Thursday, April 26, 2007

Week 8: The nature of good design

OK one thing that has been annoying me in this unit, why the hell wont anyone answer questions in tutes! i mean dam people what we are being asked is not that hard! i know you know the answer, just open your mouth. That said...

Client-Server divides programs into two types
• Server – manages information system resources or provides
well defined services for client
• Client – communicates with server to request resources or
• Advantage – Deployment flexibility
– Location, scalability, maintainability
• Disadvantage – Potential performance, security, and
reliability issues from network communication


• Systems design is process of organizing and structuring
components of system to allow construction
(programming) of new system
• Design phase of project consists of activities that relate to
design of components of new system
– Application architecture, user interfaces, system interfaces,
database, network diagram, system controls
– Prototyping may be required to specify any part or all of the

• Inputs to design activities are diagrams, or models, built
during analysis
• Outputs of design are also set of diagrams, or models, to
describe architecture of new system and detailed logic of
programming components
• Inputs, design activities, and outputs are different
depending on whether a structured approach or an
object-oriented approach is used
• Architectural design adapts to development environment
and decomposes design into layers

Thursday, April 19, 2007

Week 7

Ok so the assignment has been started finally, i think i should still have enough time to get through it without stressing myself out. Although there are other assignments due during this time... ow well we will get thourgh :). Was looking through the sample assignment again after starting, and i must say that i am so happy that we were given this because it would have been very hard otherwise to understand how these things are supposed to be set out and what is exactly required in each section.

Again i am battling against Visual Paradigm and loosing. Peter mentioned that there are some people that can just sit at case tools and work straight from there; i have found that i AM NOT one of these people. I like pen and paper, so i suspect the program will be the last stop when completing the assignment.

I like the idea of Partial Matrix's, although their objectiveness can be biased by the user and their desired outcome if done correctly it defiantly shows the pros and cons of the different options.

Better get back to the tute

Till next we meet,

Thursday, April 05, 2007

Week 6

These posts are getting smaller and smaller, hmm i kind of knew this would happen! OK so week 6, MORE AND MORE AND MORE of the UML, i don’t see the point in use case models.. they look and seem stupid but hopefully ill understand what the hell they are good for after the assignment. Started using visual-paradigm today, ok for one it would be nice to be taught how to use it! you know instead of just going 'here use'. It was basically trial and error which is so not professional. Meh my rant and obligation post has been completed.

Thursday, March 29, 2007

Week 5

Events! ok so after the tute i think im finnally getting my head around events verses activities. But have a feeling that i may need to be revise this when completing the first assignment. I find i learn amost everything from doing the assignments. From the information presented in the lecture the DFD's seem like its going to take a LONG TIME to get them close to the real life abstraction, so i better get a move on and get this assignment into gear.

Thursday, March 22, 2007

Week 4:

Begining analysis (but does not reference the chapter of the same name in the book, really means chapter 5):

The starting point of analysis is is attempting to model an event. An even being an occurrence at a specific time and place that triggers a system process. There are three types of events:

- Outside the system
- Initiated by external agent or actor

- Occurs as result of reaching a point in time
- based on system deadlines

- Something inside system triggers processing need

The rest of the lecture was basically about all the different modelling diagrams contained in the UML. It may become confusing when differentiating them because a lot of them are structured the same way and include the same information. We have already looked at Class diagrams in java and ERD/DSD in database so I’m not too worried, but intend to go back and look over the differences.

My father is a member of a private golf club that has such a system in place, so I’m aware of most of the extra information need to operate. This helped immensely when interviewing the mock client because i could already foresee the answers to the questions i had and was merely clarifying what i already knew.