Comments on: Does an asset-liability approach inevitably lead to fair value? http://www.fasri.net/index.php/2009/10/does-an-asset-liability-approach-inevitably-lead-to-fair-value/ Just another WordPress weblog Mon, 30 Jan 2012 18:54:30 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Jeffrey Hales http://www.fasri.net/index.php/2009/10/does-an-asset-liability-approach-inevitably-lead-to-fair-value/comment-page-1/#comment-3839 Jeffrey Hales Tue, 13 Oct 2009 18:44:55 +0000 http://fasri.net/?p=1459#comment-3839 I don't think an asset/liability approach necessarily points you toward the use of fair value. The point of the asset/liability perspective is that you must define net assets before you can talk meaningfully about changes in those net assets. The choice of which measurement attribute to use for a given asset or liability is completely separate. In my opinion, the part of the framework that is linked more closely to measurement attributes is the concept of representational faithfulness. Representational faithfulness is defined in Concept Statement 2 as the "correspondence or agreement between a measure or description and the phenomenon it purports to represent. In accounting, the phenomena to be represented are <strong>economic</strong> resources and obligations and the transactions and events that change those resources and obligations" (Par. 63, emphasis added). By linking accounting measures to the underlying economic phenomena, the conceptual framework (in my opinion) makes it much harder to ignore information about the economic events that have transpired during a reporting period. <blockquote><em><strong>Disclaimer:</strong> The views expressed here are my own and do not represent positions of the Financial Accounting Standards Board. Positions of the FASB are arrived at only after extensive due process and deliberations.</em></blockquote> I don’t think an asset/liability approach necessarily points you toward the use of fair value. The point of the asset/liability perspective is that you must define net assets before you can talk meaningfully about changes in those net assets. The choice of which measurement attribute to use for a given asset or liability is completely separate.

In my opinion, the part of the framework that is linked more closely to measurement attributes is the concept of representational faithfulness. Representational faithfulness is defined in Concept Statement 2 as the “correspondence or agreement between a measure or description and the phenomenon it purports to represent. In accounting, the phenomena to be represented are economic resources and obligations and the transactions and events that change those resources and obligations” (Par. 63, emphasis added).

By linking accounting measures to the underlying economic phenomena, the conceptual framework (in my opinion) makes it much harder to ignore information about the economic events that have transpired during a reporting period.

Disclaimer: The views expressed here are my own and do not represent positions of the Financial Accounting Standards Board. Positions of the FASB are arrived at only after extensive due process and deliberations.

]]> By: Robert Bloomfield http://www.fasri.net/index.php/2009/10/does-an-asset-liability-approach-inevitably-lead-to-fair-value/comment-page-1/#comment-3684 Robert Bloomfield Wed, 07 Oct 2009 16:32:10 +0000 http://fasri.net/?p=1459#comment-3684 The long history of the asset-liability approach makes it pretty clear that it wasn't an <em> attempt </em> to move toward fair value. But do you think it is reasonable to argue that it did unintentionally prepare the groundwork for fair value? The old focus on income and matching didn't allow for much reasonable basis for fair value, while the focus on getting the assets and liabilities 'right' certainly does. Put another way, the asset-liability view doesn't make fair value measurement "inevitable," but it does make it "possible." The long history of the asset-liability approach makes it pretty clear that it wasn’t an attempt to move toward fair value. But do you think it is reasonable to argue that it did unintentionally prepare the groundwork for fair value? The old focus on income and matching didn’t allow for much reasonable basis for fair value, while the focus on getting the assets and liabilities ‘right’ certainly does.

Put another way, the asset-liability view doesn’t make fair value measurement “inevitable,” but it does make it “possible.”

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