Essay About Fair Value And Alternative View

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 IASBs public
pronouncements, and an Alternative View implicit in publicly expressed
criticisms of the IASBs 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