Measurement in Financial Reporting: The Need for Concepts

SYNOPSIS The Conceptual Framework neither specifies the objective or definition of accounting measurement, nor provides a conceptual basis for choosing among alternative measurement bases. This paper offers a starting point for developing measurement concepts based on existing Framework concepts, including the objective of financial reporting, the qualitative characteristics of useful financial information, and the definitions of assets and liabilities. The paper focuses on subsequent measurement of individual assets and liabilities and concludes that fair value measurement is more consistent with existing concepts than either modified or unmodified historical cost. Although unmodified historical cost is consistent with some concepts, modified historical cost—which is widely used today—largely is not. Also, aggregate amounts, such as total assets and total liabilities based on modified or unmodified historical cost, lack meaning. Because financial statements include such aggregate amounts and changes in amounts of individual assets and liabilities determine comprehensive income, measurement concepts also need to contemplate these measurements.

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The effect of accounting methods on financial reporting quality

International Journal of Law and Management ◽

10.1108/ijlma-03-2017-0022 ◽

2018 ◽

Vol 60 (6) ◽

pp. 1401-1411

Author(s):

Andrain Hadiyanto ◽

Evita Puspitasari ◽

Erlane K. Ghani

Keyword(s):

Financial Reporting ◽

Palm Oil ◽

Reporting Quality ◽

Fair Value ◽

Financial Information ◽

Financial Reporting Quality ◽

Content Type ◽

Historical Cost ◽

Fair Value Measurement ◽

Value Measurement

Purpose This study aims to examine the relationship between accounting measurement method of biological asset and financial reporting quality. Specifically, this study examines whether using fair value method or the historical cost method on biological asset provides different financial reporting quality. Design/methodology/approach This study uses data from 38 agricultural companies that are members of the Roundtable on Sustainable Palm Oil. The annual reports of 38 companies from the Palm Oil Growers over a five-year period starting from 2011 to 2014 are analysed. Findings This study shows that companies using historical cost measurement produce less reliable and less relevant information compared to the companies that are using fair value measurement. Research limitations/implications The results in this study imply that the use of fair value measurement improves the quality of financial information. Practical implications This study supports IASB’s justification of developing IAS 41 as the principle-based standard that better represents the financial information related to biological asset and subsequently lead to good accountability and harmonisation practices. Originality/value This study provides evidence on the best measurement to be used in agriculture activities using a larger sample size of few countries. In addition, this study contributes to the existing literature on the effect of accounting methods on financial reporting quality.

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Примена опрезности у финансијском извештавању – навика или потреба? // Application of prudence in financial reporting – a habit or necessity?

ACTA ECONOMICA ◽

10.7251/ace1522063s ◽

2018 ◽

Vol 13 (22) ◽

pp. 63

Author(s):

Ката Шкарић Јовановић

Keyword(s):

Conceptual Framework ◽

Financial Reporting ◽

Empirical Studies ◽

Financial Statements ◽

Radical Change ◽

Fair Value ◽

Time Asymmetry ◽

Historical Cost ◽

Primary Users ◽

Gains And Losses

Резиме: Финансијско извештавање већ више векова с правом се означава као конзервативно. Начело опрезности чија премена генерише конзервативизам, а које се одликује временском асиметријом у признавању губитака и добитака, не само да је једно од најстаријих, већ и једно од најутицајнијих правила у финансијском извештавању. Означавање инвеститора, поверилаца и осталих зајмодаваца као примарних корисника финансијских извештаја довело је до тога да се у Концептуалном оквиру финансијског извешавања неутралној презентацији финансијских извештаја даје апсолутни примат у односу на опрезност, која је означена као непожељна. Бројна емпиријска истраживања, у великој мери изазвана и оваквом радикалном променом, показала су да су користи од примене конзервативизма у финансијском извештању и у данашњим околностима такве да се увелико надилазе његове слабости. С дуге стране, неутралност се може постићи у презентацији појединих позиција финансијских извшетаја али не при постојећим околностима и финансијских извештаја у целини. Заменом опрезности са неутралношћу нарушена је конзистентност која је нужна између Концептуалног оквира за финансијско извештавање и МРС/МСФИ. У многим од МРС/МСФИ садржани су захтеви за признавање и вредновање који су засновани на опрезности. Испуњавање ових захтева неминовно води конзервативизму у презентацији финансијских извештаја. Како су МРС/МСФИ изграђени на мешовитој основи коју чине: концепт историјског трошка, с којим је чврсто повезана опрезност, и концепт фер вредности, за који се везује неутралност. Стога се сасвим основано у презентацији финансијских извештаја могу очекивати и неутрално и конзервативно презентиране информације. Враћањем опрезности у Концептуални оквир финансијског извештавања осим што би била отклоњена неконзистност која постоји између њега као основе на којој се ревидирају постојећи и доносе нови стандарди, био би потврђен допринос конзервативизма заштити интереса поверилаца и инвеститора.Summary: For many centuries financial reporting has been rightfully labeled as conservative. The principle of prudence whose application generates conservatism, which is characterized by time asymmetry in the recognition of gains and losses, is not only one of the oldest but also one of the most influential rules in financial reporting. Determining the investors, creditors and other lenders as primary users of financial statements has led to the fact that in the Conceptual Framework for Financial Reporting the neutral presentation of financial statements has the absolute precedence over prudence, which is marked as undesirable. Numerous empirical studies largely caused by such a radical change have shown that the benefits of application of conservatism in financial reporting and in the present circumstances are such that they greatly surpass its weaknesses. On the other hand, neutrality can be achieved in the presentation of certain positions in financial statements but not under the existing circumstances and financial statements in general. Substituting prudence with neutrality violates consistency, which is necessary between the Conceptual Framework for Financial Reporting and IAS/IFRS. Many of IAS/IFRS contain requests for recognition and validation that are based on the prudence. Meeting these requests will inevitably lead to conservatism in the presentation of financial statements. Since IAS/IFRS are built on a mixed basis consisting of the historical cost concept, which is tightly linked with prudence, and fair value concept, which is linked with neutrality, then it is quite reasonable to expect both neutrally and conservatively presented information in the presentation of financial statements. By restoring prudence in the Conceptual Framework for Financial Reporting, besides eliminating inconsistence that exists between it as a basis for revising existing and adopting new standards, contribution of conservatism to protecting the interests of creditors and investors would be confirmed.

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The Critical Aspect on Fair Value Accounting And Its Implication To Islamic Financial Institutions.

Al-Iqtishad Journal of Islamic Economics ◽

10.15408/aiq.v6i2.1236 ◽

2014 ◽

Vol 6 (2) ◽

pp. 283-304

Author(s):

Jamaluddin Majid ◽

Safri Haliding

Keyword(s):

Financial Institutions ◽

Accounting Standards ◽

Fair Value ◽

Critical Aspect ◽

Fair Value Accounting ◽

Historical Cost ◽

Accounting Measurement ◽

Islamic Financial Institutions ◽

Value Measurement ◽

Critical Aspects

The Critical Aspect on Fair Value Accounting And Its Implication To Islamic Financial Institutions. Fair value accounting (FVA) paradigm replaced the historical cost accounting (HCA) in the development of accounting standards that FVA is more relevant that HCA probably did not provide the real financial and income information. This paper tries to explore critical aspects of the fair value accounting and its implications to Islamic Financial Institutions implications. This study concludes that that fair value accounting measurement provides many critical aspects to be implemented to Islamic Financial Institutions (IFIs). AAOIFI proposed cash equivalent value as respond to fair value measurement that cash equivalent value when the attribute condition are present such as the relevance, reliability and understandability of the resulting information DOI:10.15408/aiq.v6i2.1236

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The Foundations for a General Theory of General Purpose Financial Reporting for Business

10.26686/wgtn.16967464 ◽

2021 ◽

Author(s):

◽

David Sutton

Keyword(s):

General Theory ◽

Financial Reporting ◽

Central Element ◽

Accounting Standards ◽

Fair Value ◽

General Purpose ◽

Historical Cost ◽

Legitimate User ◽

Valuation Method ◽

Value Measurement

<p>Accounting standards setters have progressively moved towards decision-useful, investor-focused fair value accounting standards for general purpose financial reporting (GPFR). With some qualification, the case is made that this development is positive for accounting as a discipline. This paper develops a referent theory of accounting to contextualize standards setters' implicit direction, derived from existing research and literature. A central element in the development of this theory is the case made for 'investor-as-GPFR user'. Against this, stakeholder theory and positive accounting theory will be identified as confounding influences on the development of a general theory of accounting. The argument is for the investor, both current and potential, as the sole legitimate user of GPFR. The practical implications of the theory are considered against the prevailing debate over optimal accounting valuation method; the debate between fair value measurement and historical cost. The case is made that a number of ostensible dichotomies in accounting thought, such as between relevance and accountability, are substantially reconcilable. The mutual exclusivity often implied of accounting information relevance and accountability-cum-reliability is rejected. The development of a general theory of accounting is timely as such a referent theory is necessary to legitimize standards setting and secure accounting's place in an increasingly diverse financial information market. Inferentially, trends in the evolution of fair value standards reflect the dominant concern to meet threats to the discipline as a whole; this standard setting trend qualified in speed and degree by the narrow interests of 'constituents'.</p>

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LABOUR MARKET REFORM: GENERAL TRENDS, EXISTING CHALLENGES, DIRECTIONS OF ADVISORY SUPPORT

The institute of accounting, control and analysis in the globalization circumstances ◽

10.35774/ibo2021.01-02.050 ◽

2021 ◽

pp. 50-59

Author(s):

Yuriy Bakun ◽

Mykhaylo Ksenofontov ◽

Lyudmyla Dudnik

Keyword(s):

Financial Reporting ◽

Balance Sheet ◽

Financial Statements ◽

Fair Value ◽

Fundamental Principle ◽

The Real ◽

Historical Cost ◽

Current Accounting ◽

Financial Position ◽

The Difference

Introduction. The article describes the concept of valuation of assets, liabilities and capital, as well as the presentation of the information received in the accounting and financial statements. Methods. Methods of structural and logical analysis, comparison and generalization of requirements of national and international accounting standards and current legislation are used in this article. Results. The economic content of the assessment of objects at the reporting date as an important methodological tool of accounting is in-depth. The principal difference between the fundamental principle of accounting - monetary valuation and evaluation as a procedure performed for the purpose of obtaining the real (fair) value of the property of the enterprise as of the reporting date is set out. The expediency of using historical value in current accounting and fair value is substantiated - when the information about the property of the enterprise in the financial statements is displayed. It has been proved that the assessment as one of the fundamental principles of accounting and assessment as a procedure that is carried out in order to obtain the real (fair) value of the property, liabilities and capital of the enterprise as of the reporting date should be distinguished. The expediency of using historical value in current accounting and fair value has been substantiated - when the information about the property of the enterprise in the financial statements is displayed. The assessment has been designated as the principle of accounting and as a procedure performed to establish the fair (fair) value of the property, liabilities and capital of the enterprise at the reporting date. To do this, the balance sheet proposes to reflect the results of their accounting for historical cost, and in the statement of financial position present information about the financial position, taking into account the fair value of assets, liabilities and equity as of the reporting date. Discussion. The difference between the indicators of these reports is recommended to be presented in the notes, accordingly, it will provide interested parties with reliable information about the financial position and will give reasons to recognize the extent to which the revalued methods of revaluation of assets, liabilities, capital and management effectiveness are used. Keywords: accounting, assessment, financial reporting, accounting principles, fair value, accounting procedure.

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The use of historical cost and fair value for property and plant and equipment measurement: Evidence from the Republic of Serbia

Economic Annals ◽

10.2298/eka2027095k ◽

2020 ◽

Vol 65 (227) ◽

pp. 95-118

Author(s):

Nemanja Karapavlovic ◽

Vladimir Obradovic ◽

Jasmina Bogicevic

Keyword(s):

Financial Reporting ◽

Cost Model ◽

Fair Value ◽

Legal Form ◽

Historical Cost ◽

Model Based ◽

Valuation Model ◽

Subsequent Measurement ◽

The Republic ◽

Willingness To Use

The aim of the paper is to reveal how financial statement preparers in the developing and transition country of the Republic of Serbia, behave in situations where they can choose between the valuation model based on historical cost and the valuation model based on fair value. In that regard, we have analysed the subsequent measurement of property and plant and equipment in Serbia. We find that companies are more likely to choose the historical cost model than the revaluation model (the model based on fair value) for owner-occupied properties and plant and equipment, and the fair value model rather than the historical cost model for investment properties. The willingness to use the revaluation model for subsequent measurement of owner-occupied properties and plant and equipment varies across different categories of companies, and we find a statistically significant relationship between that willingness and the legal form of the company. We also find that in the notes to their financial statements, a significant number of companies in Serbia do not disclose adequate information on the model used for subsequent measurement of property and plant and equipment, although such information is required by the applicable financial reporting standards.

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Fair Value Concept Specifics in Financial Reporting and Auditing

Economic Themes ◽

10.1515/ethemes-2015-0008 ◽

2015 ◽

Vol 53 (1) ◽

pp. 119-141

Author(s):

Bojan Rupić ◽

Ljiljana Bonić

Keyword(s):

Financial Reporting ◽

Information Needs ◽

Technological Development ◽

Financial Statements ◽

Fair Value ◽

Fair Value Accounting ◽

Historical Cost ◽

Modern Business ◽

Net Assets ◽

Value Concept

AbstractInvestors have become the most important users of financial statements in modern business conditions, and mixed base of financial reporting has been established in order to meet their information needs and it includes elements of the concept of historical cost and the fair value concept, with an increasing shift towards the fair value concept. The primary task of fair value accounting becomes the expression of the fair value of the net assets at the reporting date, while the financial results represent the change in fair value of net assets between the two reporting periods. In our country the application of the "full IFRS" is mandatory for large enterprises and the application of IFRS for SMEs is mandatory for small and medium-sized entities, thus fair value accounting becomes an integral part of the financial statements of domestic companies. However, fair value accounting is not a suitable concept for our country characterized by shallow and underdeveloped financial market, companies whose owners are the company managers at the same time, and low level of economic and technological development. A financial statement audit in terms of the use of the fair value concept becomes much more demanding and complex than the audit of the financial statements based on historical cost accounting.

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Amendments to IAS 16 and IAS 41: Are There Any Differences between Plant and Animal from a Financial Reporting Point of View?

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis ◽

10.11118/actaun201765010327 ◽

2017 ◽

Vol 65 (1) ◽

pp. 327-337 ◽

Cited By ~ 2

Author(s):

Patrik Svoboda ◽

Hana Bohušová

Keyword(s):

Dairy Cows ◽

Financial Reporting ◽

Fair Value ◽

Apple Orchard ◽

Point Of View ◽

Historical Cost ◽

Factors Influencing ◽

Significant Difference ◽

Value Measurement

The aim of the paper is the evaluation of appropriateness of different ways for the measurement and reporting of different groups of biological assets. There are two possible ways of their measurement – cost and fair value. The substance of all kinds of biological assets differs significantly, especially for plants and animals. The single way for measurement of all kinds of biological assets is not satisfactory. The most significant difference is observable between bearer plants and biological assets in the form of living animals. The authors took into account a majority of factors influencing quality of individual ways of measurement, and evaluated the application of the above‑mentioned methods for representatives of both kinds of biological assets (apple orchard and dairy cows). The results of the study proved that the historical cost is the suitable way of bearer plants measurement, while the fair value measurement is more suitable for measurement of living animals.

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FIXED ASSETS ACCOUNTING IN ACCORDANCE WITH THE NEW FEDERAL STANDARD FSBU 6/2020 «FIXED ASSETS»

Vestnik of the Russian University of Cooperation ◽

10.52623/2227-4383-1-43-7 ◽

2021 ◽

pp. 34-38

Author(s):

O.V. Eliseyeva

Keyword(s):

Financial Reporting ◽

Financial Statements ◽

Fair Value ◽

Practical Application ◽

Reporting Standard ◽

International Financial Reporting Standard ◽

Financial Reporting Standards ◽

Fixed Assets ◽

Federal Standard ◽

Value Measurement

The article examines the main changes in the accounting and tax accounting of fixed assets that have occurred in accordance with the adoption of the new Federal standard FSBU 6/2020 «Fixed Assets». The author compared the current PBU 6/01 «Accounting for fixed assets» with the mandatory for use from the reporting for 2022 FSBU 6/2020 «Fixed assets». The article contains comparative characteristics of regulatory documents and explanations on them. The new regulatory document introduces changes not only to such concepts as cost, depreciation, useful life, but also gives a new, significantly distinguis hable, concept of fixed assets, requirements for the recognition of assets as items of fixed assets. The comparisons made in the article can be useful for practical application. It is noted that the accounting of fixed assets has become closer to International financial reporting standards. For example, such a concept as «fair value» is introduced by FSBU 6/2020 in accordance with International Financial Reporting Standard (IFRS) 13 «Fair Value Measurement». The author concluded that the practical application of all the innovations in the accounting of fixed assets will facilitate the formation of financial statements in accordance with IFRS.

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