Journal of Accounting and Management Information Systems (JAMIS)

Dilemma of measurement alternatives. The general model for measurement of financial statements’ elements

16/2006 ,   p64..82

Camelia Iuliana LUNGU

Keywords:   valuation, financial statements, fair value, bases for evaluation


The purpose of this essay is to review the various approaches of measurement in the accounting literature. This is a fundamental research based on literature’s analyze. The idea for this study came while reading the most recent IASB discussion paper on accounting measurement: Measurement Bases for Financial Accounting - Measurement on Initial Recognition, prepared by staff of the Canadian Accounting Standards Board in November 2005. Thus, this paper is a review of concepts used during time for measurement process. We also pursued the development of evaluation attributes/bases and their impact on evaluation models proposed by different researchers as Chambers and Staubus, two important representatives of measurement theories.
The paper starts with a review of accounting practices aimed at discovering what was the issue that accounting attempted to measure at its beginnings. And we found that the valuation process was initially viewed as a qualitative measure. We can explain by knowing that the first attempt to valuate something was valuation of events and transactions that generated monetary flows rather than valuation of generated items.
Considering the historical evolution, Homburger points out that the measurement in accounting begins, in fact, with industrial revolution, when the businesses needed to determine the cost of their decision making. The development of this concept generated the background of measurement in financial statements.
Nowadays, the valuation process lays the foundation of the scope for presenting financial position and performance in each economic entity. IASB defines measurement as the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement.
For describing this concept the professional bodies created valuation models. These involve the selection of the particular basis of measurement. A number of different measurement bases, such as historical cost, current cost, realizable (settlement) value, present value or fair value, are employed to different degrees and in varying combinations in financial statements. At this moment the greatest part of entities uses the historical cost model (as described in the IASB Framework) as the most popular because of the easiness of value determination.
Further we discussed the relationship between measurement issues and accounting principles: the historical cost, the fixed monetary unit, the prudence, the separate valuation of assets, liabilities and equity and going concern.
The study goes on to examine specific measurement practices for valuation of assets, liabilities, revenues and charges and the consequent determination of income, then, to describe the various bases used in the valuation. We discussed the bases of evaluation with regard to using in different moments in time, such as: initial, subsequent and final (the derecognizing moment).
Finally, we show a diversity of models used for measure the financial statements’ elements and we support this diversity beside the subjectivity of existing models. Our argument is that different models help us find a proper value for certain situation.
In this context we find interesting to determine whether accounting information generated by various sources may be gathered in order to obtain a proper valuation of events and transactions and if so, how much utility would have such a gathering, taking into account the higher degree of subjectivity that characterizes a transposition of facts in amounts?