Project Pages
Conceptual Framework—Recognition and Measurement Approaches
Project Description: This project has two primary objectives. The objectives will be addressed in two subprojects. One objective is to develop recognition criteria for whether information should be reported in state and local governmental financial statements and when that information should be reported. Another objective is to consider the measurement concepts, both the measurement approach or approaches (for example, initial amounts or remeasured amounts) that conceptually should be used in governmental financial statements and measurement attributes (the feature of the assets or liabilities that is measured). This project ultimately will lead to a Concepts Statement on measurement and a Concepts Statement on recognition of elements of financial statements.
Status:
Currently being deliberated.
Preliminary Views issued June 2011
Added to Research Agenda: August 2005
Added to Current Agenda: December 2005
Conceptual Framework: Recognition and Measurement Approaches—Project Plan
Background: The Board frequently must decide whether an item of information should be recognized in the financial statements, when such an item should be recognized, and at what amount it should be recognized. In the past, the Board has relied on the conceptual framework of other standards setters and analogous examples from practice or previous standards to make such decisions. This method of making decisions tends to lead to certain inconsistencies in financial reporting standards and could result in too much reliance being placed on accounting concepts that were not developed for a governmental environment.
Thus, the project on recognition and measurement is needed to provide the GASB with conceptual guidance as to when elements of financial statements should be reported in particular financial statements and at what amount. This will entail developing recognition criteria and will include a discussion of when elements of financial statements are recognized using different measurement focuses. For the GASB to make consistent financial reporting decisions, it is necessary to have (1) definitions of the elements of financial statements, (2) a basis for determining when elements of financial statements should be recognized in the financial statements, and (3) a basis for determining which measurement approach (for example, initial amounts or remeasured amounts) is appropriate for reporting the elements. The GASB issued a Concepts Statement on the definitions for the elements of financial statements in 2007, and a conceptual framework project on recognition and measurement is necessary to complete the conceptual basis for reporting items in traditional financial statements.
Accounting and Financial Reporting Issues:
Overall
- What messages are financial statements conceptually attempting to convey? (In other words, what is the story that the financial statements attempt to communicate, or what questions should be answered by reading different financial statements and financial statements prepared using different measurement focuses? For example, the statement of cash flows answers the question, “What happened to cash during the year?”)
- What is the relationship among objectives of financial reporting (user needs), financial statements, measurement focuses, and measurement approaches at the conceptual level?
- How does when an element is recognized affect the meaning that is to be conveyed by a particular financial statement?
- What measurement approach(es) best conveys the message(s) intended for financial statements? What is the role of initial amounts and remeasured amounts in conveying these messages? Is the same measurement approach applicable in all measurement focuses?
- Should the application of remeasured amounts be different for the statement of net assets and the statement of activities? How do remeasured amounts relate to the cost of service model of the statement of activities?
- What measurement attributes should be considered?
- What are the fundamental recognition criteria necessary to report an element in a financial statement?
Project History: The importance of this conceptual project was confirmed by the Governmental Accounting Standards Advisory Council (GASAC). At its July 2005 meeting, the GASAC discussed the importance of recognition issues in the development of the GASB’s conceptual framework. It was ranked sixth out of 23 current agenda, research agenda, and potential projects by Council members during their discussion of GASB agenda priorities. The potential companion project, measurement attributes, which was on the research agenda since December 2003, was ranked fourth by the GASAC members. Considering this feedback, the GASB formally added a conceptual framework project on recognition to the research agenda in August 2005. A combined recognition and measurement attributes concepts project was added to the current agenda in December 2005.
Subsequently the name of the combined project was changed to recognition and measurement approaches.
At the December 2007 meeting the Board reached tentative conclusions regarding the scope of the project as follows:
- This project will be limited to recognition and measurement concepts for historically-based financial statements—a statement of financial position and a statement of resource flows.
- A financial statement (and its related articulating financial statements) should employ a single measurement focus.
- The economic resources, current financial resources, and cash measurement focuses would be evaluated in this project.
- What were the current financial resources and claims against current financial resources of the entity at the reporting date?
- What was the balance of current financial resources at the reporting date that was available for spending?
- What were the amounts and sources of inflows and outflows of current financial resources during the reporting period?
In March 2008, the Board focused on the specific meaning of the term current financial resources for the purpose of explaining with greater specificity the messages conveyed by financial statements prepared using the current financial resources measurement focus, but did not reach a conclusion on the issue.
In April 2008, the Board discussed the association of messages in CFR financial statements with the items that would need to be reported to convey those messages. The Board tentatively agreed that CFR financial statements should convey information about the amount available for spending, which is (1) a residual of the amount of resources in spendable form at year-end and remaining obligations associated with spending of the period being reported on and (2) the amount that was available for spending in the period being reported on and that was left unspent at year-end. The Board also agreed to conduct additional research with users and preparers of financial statements to better understand what information is sought from CFR financial statements.
In May and June 2008, the Board reviewed various proposals for draft financial statements to be used as the basis for the research with users and preparers without reaching a conclusion.
In July 2008, the Board discussed measurement issues and especially the status of other standards setters’ conceptual projects on measurement as a basis for the August 2008 joint meeting with the Federal Accounting Standards Advisory Board (FASAB).
In August 2008, the Board met jointly with FASAB and discussed at a high level measurement approaches and their relationship to objective of financial reporting.
In September 2008, the Board approved the CFR research materials and tentatively concluded that the scope of the measurement approaches portion of the project is to determine when each of the two primary measurement approaches should be used:
Initial Transaction Date-based Measurement (Initial Amount)—The transaction price or value assigned when an asset was acquired or a liability was incurred, including subsequent modifications to that price or value, such as through amortization or depreciation.
Current Financial Statement Date based Measurement (Remeasured Amount)—The value of an asset or liability remeasured as of the financial statement date, including fair value; current acquisition, sale, and settlement price; replacement cost; and value-in-use.
The Board also decided to approach its discussion of measurement approaches in such a ways as to not preclude the possibility of a mixed-approach model.
At the November 2008–March 2009 meetings, the Board discussed the application of measurement approaches. In November 2008, the Board tentatively concluded that the most appropriate measurement approach for assets used in the provision of services is initial amounts, and that the most appropriate measurement approach for assets not used in the provision of services is remeasured amounts; however, an exception will be considered for assets that will be held to maturity.
At the December 2008 meeting, the Board reached tentative conclusions regarding various aspects of measurement as follows:
- The Board confirmed its prior tentative decision that remeasured amounts are most appropriate for assets not used in providing services (receivables and investments).
- Long-term, fixed-rate debt should be reported at initial amounts.
- Initial amounts are the best measurement attribute for liabilities for which payment amounts and dates are specified.
- Remeasured amounts are the best measurement attribute for liabilities for which payment amounts or dates are unknown.
- In addition to promotion of the qualitative characteristics, evaluation of the appropriate measurement approach may be influenced by the implied intent for the use of the asset or the settlement of the liability in circumstances when intent can be sufficiently demonstrated and the relative ease or difficulty with which the remeasured amount of the asset or liability could be realized.
- Reviewed the concept of implied intent related to categories of assets, tentatively concluding that the implied intent for assets used in providing services in consistent with use of the initial amount measurement approach and that the implied intent characteristic is not influential in determining the appropriate measurement approach for assets not used in providing services.
- Reviewed a summary of its tentative conclusions regarding measurement approaches in financial statements prepared on the economic resources measurement focus.
At the April 2009 meeting, the Board tentatively decided that the scope of the project with respect to recognition in financial statements prepared using the economic resource measurement focus would be expanded to more fully explore the concept of interperiod equity, which underlies the elements deferred inflows of resources and deferred outflows of resources.
At the July and August 2009 meetings, the Board reviewed and edited a draft section on measurement approaches in financial statements prepared using the economic resources measurement focus that incorporated the prior tentative decisions on measurement approach issues.
At the October 2009 meeting, the Board considered issues associated with interperiod equity to serve as a basis for developing recognition concepts for deferred inflows and outflows of resources, tentatively concluding that the following may give rise to deferred inflows or outflows:
- Outflows of resources that are intrinsically related to future services
- Time restrictions on inflows of resources when the transaction does not meet the definition of a liability
- A sale of resources that were not previously recognized in the financial statements (future resources)
- Changes in the fair value of recognized assets when conditions exist such that there is little likelihood of realization of the gain or loss.
At the February and March 2010 meetings, the Board reviewed the FASAB’s draft measurement concepts, which were developed the FASAB using the GASB’s draft measurement concepts as a starting point, making various changes necessary to adapt the document to the federal government environment. The Board gained an understanding of some of the unique features of the federal government environment in order to better understanding the differences in the two drafts. The Board tentatively agreed to harmonize terminology with the FASAB, where possible. The Board also decided to consider adding a section on measurement methods, similar to FASAB’s section on measurement attributes.
At the May and June 2010 meetings, the Board continued its evaluation of a potential section discussing specific measurement methods. In June 2010, the Board met with the Federal Accounting Standards Advisory Board (FASAB) to discuss common issues regarding measurement concepts. The Boards tentatively agreed to harmonize terminology so that the terms used—measurement approach, measurement attribute, and measurement method—are used consistently by both Boards in developing their respective measurement concepts statements.
Research on the current financial resources measurement focus was conducted with the project task force and the GASAC in June, August, and October 2010.
In September 2010, the Board continued its discussion of the near-term financial resources model and tentatively decided that the model should be based on assets that are resources that are normally receivable and due to be received in the near-term as well as cash and resources that are available to be converted to cash within the near-term and on liabilities which include those normally payable and due to be paid within the near-term.
In October 2010, the Board again reviewed its near-term model and tentatively decided that a due process documents should be drafted that include these recognition concepts. Additionally, the due process document would include the previously discussed measurement concepts as well as the following revised recognition concepts for deferred inflows and outflows of resources.
Circumstances that may give rise to deferred inflows and outflows in financial statements prepared using the economic resources measurement focus include the following:
- Outflows of resources that do not meet the definition of an asset but are intrinsically related to future services
- Inflows of resources that do not meet the definition of a liability but are restricted or limited for use in a future period
- Sale of resources that were not previously recognized in the financial statements (future resources)
- Inflows and outflows of resources related to changes in the fair value of recognized assets and liabilities when the item is related to an inflow or outflow of resources that will occur in the future.
- Outflows of resources that do not meet the definition of a liability but are intrinsically related to future spending
- Inflows of resources that do not meet the definition of a liability but are restricted or limited for spending in a future period.
In June 2011, the Board approved the Preliminary Views on concepts related to Recognition of Elements of Financial Statements and Measurement Approaches.
In November 2011, the staff provided the Board with comments received on the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches.The comments presented to the Board related to the overall project, to the economic resources measurement focus and the related recognition concepts for deferred outflows of resources and deferred inflows of resources, and to measurement approaches.
Noting a low volume of responses, particularly from financial statement users, the Board considered several options for proceeding with the project: to move the entire Preliminary Views forward to an Exposure Draft, to separate recognition and measurement concepts and continue with only measurement concepts, or to delay the entire project to allow for further research on recognition concepts. The Board decided, at that time, not to split the recognition and measurement concepts into separate projects. The Board further concluded that it had not received sufficient feedback, to move the project forward to an Exposure Draft. The Board requested that the staff draft questions seeking additional financial statement user feedback on the Preliminary Views for review at the December meeting.
In December 2011, in response to the Board’s request at the November meeting, the staff presented the Board with questions to be asked of users during interviews designed to gather feedback from users of governmental fund financial statements in regard to the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches. The questions were submitted for feedback from the Board on whether they were likely to elicit the information sought by the Board. The Board agreed with the overall approach that the project staff will take to elicit user response to the Preliminary Views. The Board further directed the staff to review the 2005 User Needs Study with the goal of identifying user feedback that relates to this subject. The Board tentatively decided that any further research on the use of governmental fund financial statements would be determined after reviewing the results of the Preliminary Views user interviews and the analysis of the User Needs Study.
In April 2012, the staff provided the Board with the results of the user interviews that were designed to gather feedback from users of governmental fund financial statements in regard to the Preliminary Views. In addition, the staff provided the Board with feedback related to this subject gathered from the 2005 User Needs Study.
In July 2012, the Board began redeliberating issues in the Preliminary Views based upon comments from respondents and from participants in the public hearings, as well as the user feedback. The Board discussed issues related to recognition in financial statements prepared using the economic resources measurement focus.
The Board tentatively agreed to define the economic resources measurement focus as follows:
The Board also tentatively agreed to explicitly identify a three-step hierarchy for recognition concepts for financial statements prepared using the economic resource measurement focus, which is consistent with the approach used by the Board in deliberating issues resulting in the issuance of Statement No. 65, Items Previously Reported as Assets and Liabilities. In this three-step hierarchy, an item is first evaluated as to whether it meets the definition of an assets or liability. If the item does not meet the definition of an asset or liability, then the item is evaluated as to whether it meets the definition of a deferred outflow of resources or deferred inflow of resources. If the item does not meet the definition of a deferred outflow of resources or deferred inflow of resources, then the item would be evaluated as to whether it meets the definition of an outflow of resources or inflow of resources.
At the August 2012 meeting, the Board tentatively agreed that the approach to measurement concepts should continue to reflect the following major features:
- The objective of measurement concepts is to establish a framework for when each of the two primary measurement approaches (initial amounts and remeasured amounts) should be used.
- A single measurement approach need not be applied to all assets and liabilities.
- The overriding criterion in evaluating the measurement approaches is which one best promotes achievement of the applicable objectives of financial reporting, with consideration of the qualitative characteristics of information in financial reporting.
At the October 2012 meeting, the Board tentatively decided that the draft Concepts Statement should include the concept that initial amounts are more appropriate when there are significant external barriers to realization of a remeasured amount, citing non-callable, long-term debt as a clear example of a liability for which there is a significant external barrier to realization of a remeasured amount.
At the November 2012 meeting, the Board tentatively agreed that the concept of significant external barriers to realization also be extended to assets. The Board acknowledged that in some circumstances, a significant external barrier to realization of a remeasured amount could be reflected in the determination of a remeasured amount, rather than considered to be the reason why a remeasured amount would not be appropriate. The Board requested the project staff to further evaluate this issue.
Current Developments: At the January 2013 meeting, the Board tentatively decided to include in the Exposure Draft on measurement the following measurement attributes:
- Historical Cost (Proceeds)—The amount paid to acquire an asset or the amount received pursuant to the incurrence of a liability in an actual exchange transaction.
- Fair Value—The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Acquisition Value—The price that would be paid to acquire the service potential the entity will obtain from an asset in an orderly market transaction at the acquisition date.
- Settlement Amount—The amount at which an asset could be realized or a liability could be liquidated with the counterparty, rather than through an active market.
- Replacement Cost—The price that would be paid to acquire the service potential the entity will obtain from an asset in an orderly market transaction at the measurement date.
Work Plan—Measurement Approaches:
| Board meetings | Topics to be considered |
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May 2013: |
Review preballot draft of Exposure Draft on measurement. |
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June 2013 (T/C): |
Review ballot draft and issue Exposure Draft on measurement. |
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July–September 2013: |
Comment period for Exposure Draft on measurement. |
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October–December 2013: |
Redeliberation of issues raised by respondents to Exposure Draft on measurement. |
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January 2014: |
Review preballot draft of a final Concepts Statement on measurement. |
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March 2014: |
Review ballot draft and issue final Concepts Statement on measurement. |
Work Plan—Recognition:
| Board meetings | Topics to be considered |
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June 2013: |
Review project history leading up to the near-term resources measurement focus proposal and identify options. |
| August 2013: | Evaluate options for proceeding with the measurement focus for governmental funds and select approach. |
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September 2013: |
Evaluate Task Force feedback on governmental funds approach and continue development of approach. |
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October 2013: |
Resolve remaining issues with governmental funds approach. |
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December 2013: |
Review initial draft of concepts section of Exposure Draft on recognition. |
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January 2014: |
Review preballot draft of Exposure Draft on recognition. |
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March 2014: |
Review ballot draft and issue Exposure Draft on recognition. |
| April–June 2014: | Comment period for Exposure Draft on recognition. |
| July–November 2014: | Redeliberation of issues raised by respondents to Exposure Draft on recognition. |
| December 2014: | Review preballot draft of a final Concepts Statement on recognition. |
| January 2015: | Review ballot draft and issue final Concepts Statement on recognition. |
Conceptual Framework: Recognition and Measurement Approaches—Recent Minutes
Minutes of Meetings, June 3, 2013
The Board reviewed the ballot draft of an Exposure Draft on concepts related to Measurement of Elements of Financial Statements, tentatively agreeing upon various clarifications. The Board voted 6-1 to issue the Exposure Draft with Mr. Granof dissenting.
Minutes of Meetings, May 14–16, 2013
The Board reviewed the preballot draft of an Exposure Draft on concepts related to Measurement of Elements of Financial Statements, tentatively agreeing upon various clarifying changes. The Board then directed the project staff to prepare a ballot draft of the proposed Concepts Statement for consideration at the June teleconference meeting.
Minutes of Meeting, April 2-4, 2013
The Board reviewed the preliminary draft of measurement concepts and made clarifying edits. The next step for the staff is to prepare a preballot draft of the measurement concepts Exposure Draft for the next Board meeting.
Minutes of Meeting, February 19-21, 2013
The Board’s discussion focused on assessing the completeness and potential for overlap of the measurement attributes of historical cost (proceeds), fair value, acquisition value, replacement cost, and settlement amount. The Board tentatively decided that acquisition value should not be presented as a separate measurement attribute. Rather, acquisition value should be identified as a term that refers to either a replacement cost or a settlement amount determined as of the acquisition date of the asset or liability. The Board also tentatively decided that replacement cost should be applicable only to assets.
The Board tentatively decided that with the exception of lower of cost or market measurements, the list of measurement attributes was sufficiently complete based upon the evaluation of the basic characteristics of measurements used in existing standards and that no overlap among the measurement attributes remained to be addressed. With respect to the use of lower of cost or market measurements, the Board determined that it would not be appropriate to include a discussion of this type of measurement in the proposed Concepts Statement because it represents an application of two different measurement attributes, rather than a separate measurement attribute.
Additionally, the Board evaluated the proposed language regarding the definition and discussion of measurement attributes and suggested various edits.
Minutes of Meeting, January 8-9, 2013
The Board discussed which specific measurement attributes should be presented in the forthcoming Exposure Draft on measurement concepts. The Board tentatively decided that the term measurement attribute would be used within the Exposure Draft and that a footnote indicating that certain other standards boards have used the term measurement basis to refer to the same aspect of measurement.
Subsequently, the Board tentatively decided to include the following five measurement attributes in the proposed Concepts Statement: historical cost, fair value, acquisition value, settlement amount, and replacement cost. These measurement attributes were tentatively defined as follows:
- Historical Cost (Proceeds)—The amount paid to acquire an asset or the amount received pursuant to the incurrence of a liability in an actual exchange transaction.
- Fair Value—The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Acquisition Value—The price that would be paid to acquire the service potential the entity will obtain from an asset in an orderly market transaction at the acquisition date.
- Settlement Amount—The amount at which an asset could be realized or a liability could be liquidated with the counterparty, rather than through an active market.
- Replacement Cost—The price that would be paid to acquire the service potential the entity will obtain from an asset in an orderly market transaction at the measurement date.
The Board noted that some measurement attributes may be inherently associated with one measurement approach and other measurement attributes may be appropriate for use under both measurement approaches. For example, historical cost could be used only as an initial amount, and settlement amount could be used under either the initial amount or remeasurement amount measurement approaches.
The Board requested the project staff to continue evaluating these measurement attributes and to develop a discussion of benefits and drawbacks to the use of these measurement attributes for consideration at the next meeting.
Minutes of Meeting, November 28-30, 2012
The Board continued its discussion of concepts for recognition of elements of financial statements and measurement approaches. The Board tentatively affirmed that the concept of a significant external barrier to realization of a remeasured amount is consistent with the proposed concept that initial amounts are most appropriate for assets that are used directly in providing services. The Board also tentatively agreed that the concept of significant external barriers to realization also should be extended to assets that will be converted to cash. The Board acknowledged that in some circumstances, a significant external barrier to realization of a remeasured amount could be reflected in the determination of a remeasured amount, rather than considered to be the reason why a remeasured amount would not be appropriate. The Board requested that the project staff further evaluate this issue.
The Board also tentatively agreed that the timing of the issuance of an Exposure Draft from the measurement approach portion of this conceptual framework project should be linked to the timing of the issuance of the project on the application of fair value. The Board requested that the project staff develop and evaluate technical agenda alternatives that would maintain the linkage between the issuance of the Exposure Drafts in both projects.
As a result of its discussion of the draft language for the measurement approaches section, the Board decided that it should reconsider the objectives of the measurement approaches section. The options could include limiting the objectives to be more consistent with that of other standards setters or expanding the conceptual guidance on when either initial amounts or remeasured amounts are more applicable to all types of assets and liabilities, possibly acknowledging for some types of assets or liabilities that this determination only should be made in setting standards.The Board requested that the project staff further evaluate these options for discussion at the January 2013 Board meeting.
Minutes of Meeting, October 2-4, 2012
The Board continued its discussion of concepts for recognition of elements of financial statements and measurement approaches. This meeting’s discussion focused on measurement concepts associated with liabilities, specifically concepts related to liabilities for which the amount and timing of future payments are known. The Board tentatively decided that the draft Concepts Statement should include the concept that initial amounts are more appropriate when there are significant external barriers to realization of a remeasured amount, citing noncallable long-term debt as a clear example of a liability for which there is a significant barrier to realization of a remeasured amount. The Board also instructed the staff to explore the potential application of the existence of significant external barriers to realization of a remeasured amount concept to the measurement of asset.
Minutes of Meeting, August 22-24, 2012
The Board continued the evaluation of feedback received pursuant to the proposed measurement concepts in the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches.
The Board tentatively agreed that the approach to measurement concepts should continue to reflect the following major features:
- The objective of measurement concepts is to establish a framework for when each of the two primary measurement approaches (initial amounts and remeasured amounts) should be used.
- A single measurement approach need not be applied to all assets and liabilities.
- The overriding criterion in evaluating the measurement approaches is which one best promotes achievement of the applicable objectives of financial reporting, with consideration of the qualitative characteristics of information in financial reporting.
After consideration of respondent feedback on various aspects of the proposals, the Board also tentatively affirmed its proposed preliminary views that (1) initial amounts are more appropriate for assets that are used directly in providing services, (2) remeasured amounts are more appropriate for assets that will be converted to cash (for example, financial assets), and (3) remeasured amounts are more appropriate for variable-payment liabilities, such as compensated absences or pollution remediation obligations, without modification.
Also based upon respondent comments, the Board directed the staff to make various editorial changes to the discussion of measurement concepts to make the language more clear and complete.
The Board also reconsidered the completeness and appropriateness of the proposed measurement concepts on an overall basis and tentatively decided to reexamine the issue of whether either of the principal measurement attributes is more appropriate for use in reporting fixed-payment liabilities.
Minutes of Meeting, July 10-11, 2012
The Board began its deliberations of comments and other feedback received on the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches, focusing on the feedback related to the proposals related to the economic resources measurement focus.
The Board tentatively agreed to propose that the economic resources measurement focus be defined as follows:
The economic resources measurement focus incorporates all outflows of resources and inflows of resources and all assets, liabilities, deferred outflows of resources, and deferred inflows of resources.
The Board tentatively agreed to propose that the recognition criteria for financial statements prepared using the economic resources measurement focus would continue to include the first criterion proposed in the Preliminary Views—that of meeting the definition of an element of the financial statements—and that the second criterion would be modified to indicate that measurement of the item sufficiently reflects the qualitative characteristics described in Concepts Statement No. 1, Objectives of Financial Statements. The Board believes that emphasis on or reference to only one or some of the qualitative characteristics would inappropriately imply a hierarchy among the qualitative characteristics.
The Board also tentatively agreed to propose a three-step hierarchy for recognition concepts for financial statements prepared using the economic resource measurement focus, which is consistent with the approach used by the Board in deliberating issues resulting in the issuance of Statement No. 65, Items Previously Reported as Assets and Liabilities. In this three-step hierarchy, an item is first evaluated to determine whether it meets the definition of an asset or liability. If the item does not meet the definition of an asset or liability, the item is evaluated to determine whether it meets the definition of a deferred outflow of resources or deferred inflow of resources. If the item does not meet the definition of a deferred outflow of resources or deferred inflow of resources, the item would be evaluated to determine whether it meets the definition of an outflow of resources or inflow of resources.
Minutes Archive
The Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches was approved in June 2011.
The Board tentatively proposed that:
- The economic resources measurement focus be defined as follows:
The economic resources measurement focus incorporates all outflows of resources and inflows of resources and all assets, liabilities, deferred outflows of resources, and deferred inflows of resources.
- The recognition criteria for financial statements prepared using the economic resources measurement focus continue to include the first criterion proposed in the Preliminary Views—that of meeting the definition of an element of the financial statements—and the second criterion be modified to indicate that measurement of the item sufficiently reflects the qualitative characteristics described in Concepts Statement No. 1, Objectives of Financial Statements.
- Recognition concepts for financial statements prepared using the economic resource measurement focus include a three-step hierarchy, in which an item is first evaluated to determine whether it meets the definition of an asset or liability. If the item does not meet the definition of an asset or liability, the item is evaluated to determine whether it meets the definition of a deferred outflow of resources or deferred inflow of resources. If the item does not meet the definition of a deferred outflow of resources or deferred inflow of resources, the item would be evaluated to determine whether it meets the definition of an outflow of resources or inflow of resources.
- The development of measurement concepts continue to reflect the following major features:
- The objective of measurement concepts is to establish a framework for when each of the two primary measurement approaches (initial amounts and remeasured amounts) should be used.
- A single measurement approach need not be applied to all assets and liabilities.
- The overriding criterion in evaluating the measurement approaches is which one best promotes achievement of the applicable objectives of financial reporting, with consideration of the qualitative characteristics of information in financial reporting.
- The measurement attributes be defined as follows:
- Historical Cost (Proceeds)—The amount paid to acquire an asset or the amount received pursuant to the incurrence of a liability in an actual exchange transaction.
- Fair Value—The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Replacement Cost—The price that would be paid to acquire the service potential the entity will obtain from an asset in an orderly market transaction at the measurement date.
- Settlement Amount—The amount at which an asset could be realized or a liability could be liquidated with the counterparty, rather than through an active market.
- Historical Cost (Proceeds)—The amount paid to acquire an asset or the amount received pursuant to the incurrence of a liability in an actual exchange transaction.