Journal of Accounting and Management Information Systems (JAMIS)

The dynamics of measurement in accounting from historical cost toward fair value

7/2004 ,   p12..21


Keywords:   fair value, dynamics, historical cost, relevant measurement basis

The valuation approach that the IASB has embraced is rapidly introducing ‘fair value’ as the primary basis of asset/liability measurement. As a result, a substantial portion of a reporting entity’s assets and liabilities will be stated in the balance sheet at ‘fair value’ – including pension assets and liabilities, derivative financial instruments, certain other financial assets, financial liabilities held for trading, tangible and intangible fixed assets that have been acquired in a business combination, impaired or revalued, assets held for disposal, share-based payment liabilities, investment properties, provisions and biological assets. The IASB has adopted what is essentially a market value definition of fair value, and expresses it in most of its standards as follows: ‘the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction’.
The IASB advocates its fair value approach on the grounds of relevance: the Board quite simply considers ‘fair value’ to be the most relevant measurement basis.