Afabiarc Vuaslue and the Conceptual Framework: An Alternative View

ORIGINAL ARTICLES

AFABIARC VUASLUE AND THE CONCEPTUAL FRAMEWORK: AN ALTERNATIVE VIEW

GEOFFREY WHITTINGTON

Fair Value and the IASB/FASB

Conceptual Framework Project:

An Alternative View

This paper analyses various controversial issues arising from the current

project of the IASB and FASB to develop a joint conceptual framework

for financial reporting standards. It discusses their possible implications

for measurement and, in particular, for the use of fair value as the preferred

measurement basis. Two competing world views are identified as

underlying the debate: a Fair Value View, implicit in the IASB's public

pronouncements, and an Alternative View implicit in publicly expressed

criticisms of the IASB's pronouncements. The Fair Value View assumes

that markets are relatively perfect and complete and that, in such a setting,

financial reports should meet the needs of passive investors and creditors

by reporting fair values derived from current market prices. The Alternative

View assumes that markets are relatively imperfect and incomplete

and that, in such a market setting, financial reports should also meet the

monitoring requirements of current shareholders (stewardship) by reporting

past transactions and events using entity-specific measurements that

reflect the opportunities actually available to the reporting entity. The

different implications of the two views are illustrated by reference to

specific issues in recent accounting standards. Finally, the theoretical

support for the two views is discussed. It is concluded that, in a realistic

market setting, the search for a universal measurement method may be

fruitless and a more appropriate approach to the measurement problem

might be to define a clear measurement objective and to select the

measurement method that best meets that objective in the particular

circumstances that exist in relation to each item in the accounts. An