Staffers at accounting standards groups are laying the groundwork for efforts to develop international standards for the measurement “bases,” or “attributes,” used in accounting.
The efforts of the staffers, at the Financial Accounting Standards Board, Norwalk, Conn., and the International Accounting Standards Board, London, are “just the beginning of major change,” says Alan Close, a member of the accounting policy committee at the American Council of Life Insurers, Washington. “It’s an accounting revolution.”
FASB and the IASB recently held a discussion in Norwalk to give members of the public a chance to tell the standards groups what they think about measurement bases in accounting.
Anthony Cope, an IASB board member, started the FASB/IASB discussion by saying that parties that had submitted written documents to the groups or would be speaking during the discussion would have a real chance to be heard.
“We have not deliberated any issues related to measurement yet,” Cope said, according to an audio recording of the discussion posted on the Web.
Much of the discussion focused on highly technical accounting issues, but the authors of background documents who prepared for the discussion point out in the documents that measurement is central to accounting, and that non-accountants might be surprised to know how under-developed the conceptual framework for thinking about measurements of key attributes really is.
“To say that we have a mixed attribute system is a massive understatement,” Cope said.
FASB and the IASB have started a “joint central framework” project in an effort to come up with a common language for discussing measurement bases, evaluate measurement bases, and address practical issues involved with using what appear to be the highest-rated bases, organization staffers write in the background paper.
For life insurers, a key concern about the framework is fair value accounting, Close says.
Users of fair value accounting attempt to determine the value of an asset by estimating how much a free, knowledgeable, independent party would pay for the asset.
Insurers may prefer use of a mixed model for measuring value that could include amortized cost, historical cost and depreciated cost as well as fair value, rather than a pure fair value model, Close says.