FINANCIAL ACCOUNTING MEASUREMENT: INSTRUMENTATION AND CALIBRATION

In its Conceptual Framework (CF), the Financial Accounting Standards Board (FASB) has not identified the observable phenomena and was not able to identify a single measurement property in financial accounting. While identifying aspects of the observable phenomena in financial accounting, the FASB has indicated that there are five measurement attributes which are used in financial accounting and the result is a mixed-attributes model. Lacking a critical underlying theory, the FASB’s Conceptual Framework is feeble at best in providing guidance for accounting measurement. Devoid of the critical theory, the FASB focuses on prediction rather than explanation and, thereby, has adopted an ‘information perspective’ as opposed to a ‘measurement perspective’ for financial accounting standards. This condition has induced a very serious concern for legislative action on the part of the US Congress. In this paper, investments constitute the observable phenomena in financial accounting and recoverable cost, which is grounded in measurement and not prediction, is the measurement property. This measurement property, which is linked to investments and explicated by the capital budgeting model, provides the logical explanation of the apparent diverse rules in financial accounting and establishes a single attribute model.