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Accounting Framework: 50 years to completion, worth the wait!

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TLDR:

  • After 50 years, the Financial Accounting Standards Board (FASB) completed its Conceptual Framework
  • The final chapter addresses the measurement of assets and liabilities

Key Elements:

In a 50-year journey since its formation in 1973, the FASB has finally completed its Conceptual Framework, which serves as a guide for consistent US generally accepted accounting principles (GAAP). The board’s internal handbook, the FASB Conceptual Framework, had previously been incomplete, with missing concepts and inconsistencies. The final chapter, set to be released this summer, addresses the measurement of assets and liabilities, a long-debated and contentious issue within the board. While the completion of the framework won’t change existing accounting rules, it will provide a more structured approach for creating new rules and resolving accounting issues.

The FASB’s efforts to finalize the framework have faced challenges, particularly in determining how to measure assets and liabilities. The board’s proposal on measurement methods was released in December and finalized in May after years of debate. The chapter emphasizes that measurement should be anchored in prices, with the only relevant systems being entry and exit price systems. While the update will provide more clarity on measurement concepts, it does not explicitly favor one measurement technique over another. Despite the completion of the framework, ongoing debates and controversies over asset measurement are expected to continue within the accounting industry.


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