The IASB mistakenly decided to recognize only the following two measurement bases under the Historical Cost Accounting model in the Conceptual Framework in IFRSs:
"A2. Measurement bases can be categorised as:
(a) historical cost (paragraphs A3–A11); or
(b) current measurement bases (paragraphs A12–A35).
1. HISTORICAL COST
A3. Measurements based on historical cost provide monetary information about resources, claims and changes in resources and claims using information about past transactions (for example, transaction prices). The initial measurement of assets or liabilities measured at historical cost is not adjusted to reflect changes in prices. However, the carrying amount is adjusted over time to reflect changes such as consumption, impairment and fulfilment.
2. Current measurement bases
A12. Current measurement bases are updated to reflect conditions at the measurement date. The following paragraphs describe the following current measurement bases:
(a) FAIR VALUE (see paragraphs A14–A21);
(b) fulfilment value for liabilities and value in use for assets (see paragraphs A22–A31)."
It is generally accepted that IFRSs, with the exception of IAS 29 Financial Reporting in Hyperinflationary Economies, deal with financial reports prepared under the Historical Cost basis.
The IASB thus, shockingly and very irresponsibly, continues to ignore the more than a 100-year-old and universally used Units of Constant Purchasing Power measurement basis under Historical Cost Accounting.
The third measurement basis used by all entities implementing Historical Cost Accoutning (but ignored by the IASB) is:
3. UNITS OF CONSTANT PURCHASING POWER (ignored by the IASB)
The Units of Constant Purchasing Power measurement basis is used to update some expenses, for example, salaries and wages, etc. and some prices, e.g., utility prices, mobile phone call rates, etc. on an annual basis, i.e., to measure these items in units of constant purchasing power in terms of the CPI or a Cost of Living Index on an annual basis under HISTORICAL COST ACCOUNTING.
It is part of US GAAP. Its use is universal under Historical Cost Accounting, but the IASB refuses to recognize it in the Conceptual Framework. This is a fundamental mistake in the Conceptual Framework and adds to IFRS being of low quality.
Summary
MEASUREMENT BASES UNDER HCA
1. Nominal Historical Cost
2. Fair Value
3. Units of constant purchasing power (ignored by the IASB)
See also:
Historical Cost Accounting versus Capital Maintenance in Units of Constant Purchasing Power™
and
Three measurement bases in IFRS
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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