The Measurement Issues in Accounting - Essay Example

The Measurement Issues in Accounting Table of Contents Introduction 3 A Brief of the Conceptual Framework – Phase C: Measurement 4 A Detailed Understanding of the Meeting Notes - Phase C: Measurement 5 Identification of the Purpose of Financial Reporting for Measurement 6 Ascertaining the General Implications of the Elementary Qualitative Facets for Measurement 6 Recognition of the Essential Qualitative Features for Fair Value and Historical Cost 6 Ascertaining the Major Objectives That the Measurement Phase Will Accomplish in Future 7 A Brief Summary of the Meeting Notes - Phase C: Measurement 7 A Brief Understanding about the Different Viewpoints Presented by the Staff 8 Conclusion 11 References 13 Introduction Measurement is generally identified as one of the crucial issues prevailing in the context of financial accounting. One of the major reasons for considering measurement as the critical issue is that it falls under the categorisation of least developed spheres from the perspective of degree of guidance offered to the users as well as the outliners of financial statements. It is worth mentioning that in order to tackle with this particular issue, various accounting boards including the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have listed certain guidelines of measurement bases for measuring various constituents of financial statements efficiently. In the background of financial accounting, the issue i.e. measurement is fundamentally described as a calculative practice, wherein certain figures or numbers are linked with the elements of different financial statements. The aggregation of these numbers eventually results into summations that are often found to be quite difficult to interpret. This situation ultimately raises the issue of measurement at large (American Accounting Association, n.d.). By taking into concern the emerging measurement issue in financial statements, both the FASB and the IASB conducted a meeting and decided to formulate a general conceptual framework. This particular framework project was viewed to be conducted through eight phases wherein Part C specifically deals with various elements of financial accounting based on which financial information ought to be measured (Deloitte Global Services Limited, 2014). With this concern, the essay intends to discuss about the subject matter of measurement issues in accounting by using the meeting notes that were superscripted in the meeting organised by both the FASB and the IASB. A Brief Description of the Conceptual Framework – Phase C: Measurement It has been earlier mentioned that the FASB as well as the IASB conducted a meeting and thus, decided to establish a conceptual framework with the intention of developing appropriate accounting standards for interpreting financial information effectively. In order to attain this particular objective, both the aforesaid accounting boards have attempted towards solving measurement issue, which is quite apparent in various elements of financial statements. It is worth mentioning that the conceptual framework devised by the IASB and the FASB for mitigating the issue of measurement, generally depicts certain additional changes made in the measurement principles. One of these changes can be determined in the form of determining the dependency level of the relevance of the data provided by a specific measurement method, which affects various elements of financial statements. These elements can be apparently observed as balance sheet, trading along with profit and loss statement and income statement among others. The other change, which has been incorporated in the conceptual framework as per the decision of the IASB and the FASB, represents the mandate of justifying the benefits that are obtained from potential lenders, creditors and the investors. Specially mentioning, the minimum usage of different measures that include indispensable for providing relevant data, evading redundant transformations especially in diverse measurement practices and clear explanation of required changes made are certain changes that have been included in the conceptual framework (Deloitte Global Services Limited, 2014). With regard to the above analysis, it will be vital to mention that the prime intent of introducing the measurement phase is to provide suitable guidance for selecting effective measurement bases that tend to satisfy the qualitative facets and the objectives of financial reporting. Notably, the prevalence of measurement issue in the procedure of financial reporting has risen considerably in this modern day context as compared to previous years. This might be due to the reasons of increasing interests of the potential investors or shareholders of an organisation to reap significant financial benefits and attain long-term economic objectives for better sustainability in this competitive landscape (Deloitte Global Services Limited, 2014). A Detailed Understanding of the Meeting Notes - Phase C: Measurement Based on the meeting conducted by the IASB and the FASB regarding the adoption of certain effective measures for dealing with measurement issues, it can be apparently observed that the Boards have formulated certain significant decisions relating to the same. These decisions are mainly related to the aspects like identifying the purpose of financial reporting specifically for measurement and ascertaining the general implications of the elementary qualitative facets for measurement. Moreover, apart from these, the other aspects noted are recognising the essential qualitative features for fair value as well as historical cost and ascertaining the major objectives that the measurement phase will accomplish (FASB, 2010). The above discussed aspects have been explained in detail hereunder. Identification of the Purpose of Financial Reporting for Measurement In relation to this particular aspect, the Boards i.e. the FASB and the IASB have taken the decision of identifying the prime targets of financial reporting particularly for measurement in order to determine the effects of a specific measurement selection irrespective of focusing on the position of the financial statements (FASB, 2010). Ascertaining the General Implications of the Elementary Qualitative Facets for Measurement In the meeting, the Boards came into a decision of ascertaining the general implications of the preliminary qualitative features for measurement for the purpose of mitigating measurement related issues in long run. In this similar context, the Boards ascertained that relevance along with faithful representation is one of the elementary qualitative facets for measurement, which need to be preserved for addressing measurement issues (FASB, 2010). Recognition of the Essential Qualitative Features for Fair Value and Historical Cost It is worth mentioning that the Boards attempt to recognise the essential qualitative facets for fair value as well as historical cost will eventually aid in maximising the information regarding the prospects of the reporting entity for projecting future cash flows. In this regard, the Boards in the meeting reached into the decision of not using the terms like fair value as well as historical cost, as these two terms do not precisely describe the various persisting measurement practices (FASB, 2010). Ascertaining the Major Objectives That the Measurement Phase Will Accomplish in Future The Boards i.e. the IASB and the FASB strongly believed that the measurement related issues of financial statements could be mainly dealt with ascertaining the prime targets that the measurement phase will accomplish. In this similar background, the targets ascertained by the Boards include listing as well as describing probable measurements and segregating or arranging varied measurement procedures in such a way, so that these facilitate in making standard-setting decisions. In addition, the other major objectives that the measurement phase will accomplish can be apparently recognised as finding out the benefits along with the drawbacks of each measurement method, adopting along with implementing effective measures towards addressing the identified drawbacks and most vitally eradicating cost constraints among others (FASB, 2010). A Brief Summary of the Meeting Notes - Phase C: Measurement After acquiring a brief idea about the decisions taken by the IASB and the FASB in relation to measurement phase, it can be ascertained that the Boards have paid utmost attention on certain significant factors. The Boards hold a strong belief that these factors will ultimately result in solving and eradicating measurement issues of financial statements at large. In this context, the important factors included are determining value realisation practices, preparing cost related statements by adopting various effective measures and ascertaining the relative confidence level in distinct measures. Apart from these, the other factors encompass using consistent measures for calculating different accounting items and maintaining the separability of changes in measures among others (FASB, 2010). It is worth mentioning that the IASB and the FASB have adopted certain probable measurement approaches that are found to be incorporated in the conceptual framework for the purpose of addressing and mitigating measurement related issues of financial reporting. In this similar concern, the above discussed approaches can be apparently observed as taking into concern estimated or actual current prices of products and adjusting past entries associated with amortisation, impairments, interest accruals and depreciation among others. Apart from these, the other important approach can be ascertained as conducting appropriate computations based on discounted or undiscounted estimations of future cash flows (FASB, 2010). During the meeting, the IASB and the FASB together reached into a conclusion that the selection of the prime measurement base amid various alterative measurement bases will primarily rely on certain important factors. According to the observation made by the Boards, the factors are ascertained as confidence level, measurement of the similar items included in various financial statements, value/flow weighting along with separation, cost-benefit and measurement of the items particularly of those that tend to create cash flows in future. Most importantly, during the meeting, the Boards also discussed about the various issues that may arise while executing the above stated different measurement approaches. In this regard, the issues can be apparently noted as the emergence of the problems relating to current entry as well as exit price, past entry along with exit price, customised past amounts, existing equilibrium price, usage value and future entry-exit price (FASB, 2010). A Brief Understanding about the Different Viewpoints Presented by the Staff With regard to the decisions taken by the IASB and the FASB in the meeting relating to the conceptual framework of dealing with measurement issues of financial management, the staff members are apparently observed to present their respective individual viewpoints regarding the same. It can be affirmed in this similar concern that the staff had diverse reactions to the decisions taken by the Boards in the meeting held in the year 2010. Concerning the segregation of measurement methods in accordance with the issues persistent in various financial statements, certain portion of the staff presented their viewpoint that the measurement methods are ought to be segregated into three distinct categories. These categories entail cost, fair value along with current prices and other different cash-flow measures (Deloitte Global Services Limited, 2014). Notably, the staff presented certain proposals to the Boards with respect to the approach of conceptual framework. In this particular scenario, the staff suggested that the conceptual framework relating to measurement phase must focus on the constituents of reporting entity, financial statements, disclosure, measurement and presentation. As per the viewpoints of the staff, the conceptual framework associated with the significant concern of measurement issue must work towards a single discussion paper covering every important area instead of emphasising separate discussion papers for every single area. Apart from providing suggestions to the Boards and presenting viewpoints, the staff also asked the members of the respective Boards about whether they are agreed to the fact of focusing on the elements of reporting entity, financial statements, disclosure, measurement and presentation (Deloitte Global Services Limited, 2012). It is worth mentioning that the staff members have presented their valuable viewpoints with respect to the decisions taken by the Boards about the structure of the designed conceptual framework. According to the staff, the structure of the conceptual framework relating to measurement issue may require separate chapters or sections, which may prove to be quite beneficial in dealing with such issues effectively. Specially mentioning, a majority of the staff claimed that the above discussed conceptual framework would be a major deliverable for both the IASB and the FASB in future, which would aid in developing appropriate standards by a considerable extent. By considering this particular scenario, the staff commented that there must lay adequate requirement of additional resources in order to complete the project within stipulated period and make the project successful at large. Besides, the staff members hold a strong belief that a clear planning is required to be made for attaining greater success in the form of completing the project within a predetermined schedule. It is anticipated that the completion of the project within a definite period will not only help the Boards to develop their respective accounting standards but also raise the confidence level of the potential investors or shareholders to make substantial level of investments (Deloitte Global Services Limited, 2012). Thus, it can be asserted that the above discussed viewpoints of the staff eventually provided a new direction towards formulating the conceptual framework relating to measurement in an effectual manner. Conclusion From the above analysis and discussion, it can be ascertained that the Boards i.e. the FASB and the IASB have jointly decided to undertake a project of developing a conceptual framework relating to the measurement of varied elements of financial statements in order to develop their respective accounting standards. It has been apparently observed that prior to formulating a conceptual framework, the Boards have focused on making certain significant changes in the measurement principles. These changes can be measured in the form of determining the dependency level of various measurement methods based on which the position of the financial statements is affected and accordingly, making a mandate of evading unnecessary changes in the measurement practices along with clearly explaining the necessary changes made in the same. With regard to the above discussed aspects, both the IASB and the FASB took certain decisions mutually regarding smooth execution of the project for the purpose of developing their respective accounting standards. In this regard, the decisions can be ascertained as appropriately determining the targets of financial reporting, ascertaining the fundamental qualitative facets for measurement and identifying the aims that the measurement principles would accomplish in future. However, by taking into concern the decisions taken by the respective Boards, the staff presented their respective viewpoints regarding the same by focusing on various significant factors. These factors encompass the structure of the conceptual framework and the need of making effective planning to complete the project successfully. Thus, in conclusion, it can be affirmed that the above discussed viewpoints of the staff may provide an extra mileage towards making the project successful in future and aid the Boards to fulfil their desired targets with utmost convenience. References American Accounting Association, No Date. Introduction. A Critical Commentary on the Concept of Measurement in Financial Accounting, pp. 1-25. Deloitte Global Services Limited, 2014. Background. Projects. [Online] Available at: http://www.iasplus.com/en/projects/completed/framework/framework-c [Accessed September 22, 2014]. Deloitte Global Services Limited, 2014. Conceptual Framework — Measurement. Meetings. [Online] Available at: http://www.iasplus.com/en/meeting-notes/iasb/2013/iasb-april-2013/cf-measurement [Accessed September 22, 2014]. Deloitte Global Services Limited, 2012. Conceptual Framework. Meetings. [Online] Available at: http://www.iasplus.com/en/meeting-notes/iasb/2012/iasb-september-2012/conceptual-framework [Accessed September 22, 2014]. FASB, 2010. Conceptual Framework — Measurement. Project Update. [Online] Available at: http://www.fasb.org/project/cf_phase-c.shtml#summary [Accessed September 22, 2014]. Read More