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Measurement - Objectives / Initial Recognition


This project was being undertaken because existing measurement standards and practices were inconsistent and a number of major measurement issues remained unsettled. The coverage of measurement in the Framework was limited and out of date. The project was to provide the IASB and its partner standard setters with a conceptual basis to revise and expand the measurement aspects of their conceptual frameworks.

In 2002, the IASB asked the Canadian Accounting Standards Board (AcSB) to carry out a research project on behalf of the IASB and its liaison standard-setting partners to undertake a preliminary investigation of alterative bases for measuring assets and liabilities that are recognized in financial statements.

On November 17, 2005, the IASB published the Discussion Paper, Measurement Bases for Financial Accounting - Measurement on Initial Recognition, prepared by the staff of the Canadian Accounting Standards Board. The IASB invited comments on the Discussion Paper by 19 May 2006.

The Discussion Paper, prepared by staff of the AcSB, analysed possible bases for measuring assets and liabilities on initial recognition. These included historical cost, current cost, fair value, net realisable value and value in use. The Discussion Paper also considered deprival value, which combines several measurement bases in a single model. The Discussion Paper evaluated the possible bases against criteria derived from the IASB Framework for the Preparation and Presentation of Financial Statements (Framework), as well as developments in finance theory, the application of present value and statistical probability principles and measurement practices.

The Discussion Paper concluded that fair value was more relevant than the other identified measurement bases on initial recognition and should be used provided it could be reliably measured. It acknowledged that significant uncertainty in measuring fair value existed in some common situations and considers which measurement bases were acceptable substitutes for fair value when fair value could not be measured reliably on initial recognition. The Discussion Paper also proposed a four-level measurement hierarchy for assets and liabilities when they were initially recognized.

Comments received were analysed by staff of the AcSB. The analysis and copies of responses were provided to the IASB.
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