The FASB has issued an Exposure Draft for the sixth chapter of its Concepts Statement No. 8, Conceptual Framework for Financial Reporting, entitled “Measurement.” This chapter seeks to establish criteria and guidance on how items recognized in financial statements should be measured and when specific measurement systems should be applied to those items.
The Exposure Draft defines the following two measurement systems to objectively measure the financial effects of transactions on the reporting entity included in the financial statements:
- Entry Price — The price paid to acquire an asset or received to assume a liability in an exchange transaction
- Exit Price — The price received to sell an asset or paid to transfer or settle a liability in an exchange transaction
An entity should select the measurement system that best meets the financial reporting objective for a particular asset or liability that is being measured. The choice between systems should be guided by whichever system best meets the objective of general purpose financial reporting for the particular asset or liability being measured. For example, the entry price measurement system better maintains the historical relationship between recognized assets and liabilities, while the exit price system requires that an asset or liability be recorded at the market participant value or entity-specific value that an entity would receive from selling an asset or the amount to settle a liability.
The FASB Concepts Statements are not authoritative, and the FASB acknowledges that the proposed Concepts Statement is not meant to override authoritative standards. However, if a transaction is not specified in authoritative GAAP, an entity must first consider accounting principles for similar transactions or events within authoritative GAAP and then consider nonauthoritative guidance from other sources such as the Concepts Statements.
The FASB is seeking responses from individuals and organizations regarding the Exposure Draft as well as seeking responses to four questions specifically identified in the text of the Exposure Draft. Any comments or responses are due by March 20, 2024.
The full text of the Exposure Draft can be found here.
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