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Tuesday, 31 July 2012

Measurement in units of constant purchasing power excluded from IASB and FASB measurement bases list

Measurement in units of constant purchasing power excluded from IASB and FASB measurement bases list


The FASB and IASB spent several years discussing measurement around the world during the Measurement Chapter of their Joint Conceptual Framework Project.

After several years of discussions around the world they published the following joint list of possible basic measurement bases:




"The Boards agreed to the following set of nine measurement basis candidates:



1. Past entry price

2. Past exit price

3. Modified past amount

4. Current entry price

5. Current exit price

6. Current equilibrium price

7. Value in use

8. Future entry price

9. Future exit price.”



It can be seen from the above FASB and IASB list that neither



(i)                  measurement (of monetary items) in terms of the Daily Consumer Price Index nor



(ii)                 measurement in units of constant purchasing power



are considered by both the FASB and the IASB as possible basic measurement bases to be included on their list.



Measurement in units of constant purchasing power is thus currently (2012) excluded as a possible basic measurement basis by both the FASB and IASB.



It is to be noted that financial capital maintenance in units of constant purchasing power as an alternative to HCA (see above) automatically maintains the existing constant purchasing power of capital constant for an indefinite period of time in all entities that at least break even in real value – ceteris paribus – at all levels of inflation and deflation.



The omission of measurement in units of constant purchasing power from the FASB´s and IASB´s joint list of possible basic measurement bases is thus noted with concern. It is difficult to come up with a plausible explanation why both the FASB and the IASB exclude measurement in units of constant purchasing power as a possible basic measurement basis.



The fact that financial capital maintenance in units of constant purchasing power is authorized in IFRS in the Framework since 1989 would normally result in it automatically being included in a list of possible basic measurement bases. However, after several years of international discussion both the FASB and IASB do not regard measurement in units of constant purchasing power as a possible basic measurement basis.



A healthy and robust discussion and publication of different viewpoints and research are good for the ongoing development of the understanding of the basic concepts of accounting / financial reporting at the FASB, IASB and elsewhere.



However, excluding measurement in units of constant purhasing power from the current (2012) list of possible basic measurement bases is not compatible with the development of high quality international accounting standards.





Nicolaas Smith



Copyright (c) 2012 Nicolaas Johannes Smith. All rights reserved. No reproduction without permission.