International Accounting Standards Board 's Preferred Measurement Basis For Financial Reporting

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International Accounting Standards Committee (IASC, 2003) define an asset as a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. In a business model assets act as inputs, either directly (plant, machinery, inventory) or indirectly (goodwill, patents, investment property) to provide products and services to the customer. As assets are expected to generate future benefits, the income generated by these assets is reported under the Income Statement while their value is reported in the Balance Sheet to deduce the value of the said business.

The focus of this report is the International Accounting Standards Board’s preferred measurement basis
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an exit price) (IFRS13). Fair value is the market value of a firm’s assets and ignores any special benefits of the assets to the business resulting from competencies such as man management skills as well as any transaction costs (Hitz, 2007). Therefore a fair value measurement is market based rather than entity specific and it represents unbiased measurements that are consistent from period to period and across entities (Penman, S. H., 2007). This helps to reinforce consistency and comparability across various reporting entities. Fair Value measurements also have the property of objectivity as it is non-entity specific and reflects the market’s valuation as compared to entity specific measurements which are subject to managerial judgments (Whittington, 2010).

Entity specific measurements account for intangibles such as business competencies and managerial know how, which gets reflected in the financial statements irrespective of whether they have been demonstrated or not. Using fair value limits today’s profit recognition to amounts market participants would assess, and leaves to the future the recognition of profit associated with management skill and synergies (Barth, 2010).

Hence we can conclude that market valuations incorporate market expectations regarding future cash flows in an efficient and unbiased manner (Hitz, 2007). It can also be argued that fair value
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