| This summary of recently issued Accounting Standards Board (AcSB) pronouncements
has been prepared for information purposes only. Reference should be made to official Handbook material for
the text of final AcSB pronouncements. |
Status: Summary of responses to Discussion Paper published.
AcSB staff have prepared a summary of the comment letters received on the Discussion Paper, “Measurement
Bases for Financial Reporting: Measurement on Initial Recognition,” which the International Accounting
Standards Board (IASB), US Financial Accounting Standards Board (FASB) and AcSB discussed in September 2006.
It is available on the IASB website here.
Background
Activities to Date
Next Steps
Related Information
Contact Information
Background
In 2002, the AcSB agreed to undertake a research project on behalf of the IASB and its liaison standard-setting partners to investigate alternative bases for
measuring assets and liabilities.
Reasons for the Project
This project is being undertaken because existing measurement standards and practices are inconsistent
and a number of major measurement issues remain unsettled. Some existing standards reflect more or less
arbitrary mixed measurement compromises, pending the resolution of conflicting views on appropriate
measurement bases. The coverage of measurement in the existing conceptual frameworks is very limited and out
of date. Major developments have taken place since these frameworks were put in place that have significant
implications for accounting measurement.
The purpose of this preliminary investigation is to identify which measurement basis
(or set of bases) is most appropriate for measuring assets and liabilities when accounting standards require
initial recognition or remeasurement. This project is designed to provide the IASB and its partner
standard setters with a basis for initiating active projects to:
- revise and expand the measurement aspects of their conceptual frameworks; and
- improve the measurement requirements of their accounting standards by grounding those requirements in a
coherent conceptual basis.
Key Issues
The project encompasses both:
- measurement on initial recognition (initial measurement); and
- subsequent measurement that may occur through revaluation, recognition of impairment loss (and reversal
of impairment loss) or remeasurement at each accounting period under a mark-to-market (fair value)
approach.
This project will consider the following issues that affect how assets and liabilities are measured on
initial recognition and on subsequent measurement, namely:
- use of market versus entity specific objectives;
- how value affecting properties are defined and perceived within entry value, exit value and market value
contexts; and
- use of a variety of measurement bases, including historical cost, replacement cost, reproduction cost,
net realizable value, value in use, fair value and deprival value.
Activities to Date
Measurement on Initial Recognition
In May 2005, the IASB approved for publication a Discussion Paper, “Measurement Bases for Financial
Reporting: Measurement on Initial Recognition,” prepared by AcSB staff, and published it in November 2005.
The Discussion Paper concludes that fair value is more relevant than the other identified measurement bases
on initial recognition and should be used provided it can be reliably measured. It acknowledges that
significant uncertainty in measuring fair value exists in some common situations and considers which
measurement bases are acceptable substitutes for fair value when fair value cannot be measured reliably on
initial recognition. It also proposes a four-level measurement hierarchy for assets and liabilities when they
are initially recognized.
The proposed measurement hierarchy for assets and liabilities on initial recognition
differs in some respects from the fair value hierarchy in the FASB’s current Fair Value Measurement Project,
the implications of which will be considered by the IASB and AcSB in the next few months.
Drafts of portions of the Discussion Paper have been discussed by the AcSB and subsequently by the IASB
and its partner standard setters on several occasions in 2003, 2004 and 2005. At the time of its publication,
the Discussion Paper has not been debated by the IASB or the AcSB and does not necessarily reflect their
views. The conclusions reached are subject to change in light of comments received, and will be reassessed
when their potential implications for remeasurement are considered in subsequent papers.
In April 2006, AcSB staff participated in roundtable discussions in London and Berlin to solicit comments
on the Discussion Paper.
In September 2006, AcSB staff presented a summary of the comments received on the Discussion Paper to the
AcSB, IASB and FASB, so that they may be taken into account by the IASB and FASB in debating the issues and
forming preliminary views on their joint Conceptual Framework Project.
Comment letters received are available on the IASB website.
Subsequent Measurement
AcSB staff, with input from IASB and its partner standard setters, developed proposals on addressing
measurement of impaired assets, and shared them with the IASB and FASB. The AcSB does not expect to issue a
discussion paper for comment on this topic.
Next Steps
The Discussion Paper and respondents’ views have provided significant insights into the complexity of
financial measurements. AcSB staff intends to consider the implications of the Discussion Paper for
accounting standard setting in light of these insights, in order to provide input to the joint Conceptual
Framework Project and other relevant projects.
Related Information
Contact Information
Questions or comments on this project should be directed to:
Rebecca
Villmann, CA
Principal, Accounting Standards
Telephone: +1 (416) 204-3464
Fax: +1 (416) 204-3412
Canadian Accounting Standards Board
277 Wellington Street West
Toronto ON M5V 3H2 Canada
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