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ACCA Strategic Professional · Strategic Business Reporting (International) · The applications, strengths and weaknesses of the accounting framework

A director of Orbis plc argues that the Framework is weak because the Board uses current value measurement bases inconsistently across Standards, and proposes using fair value for all assets in the group financial statements regardless of the applicable Standards. Which statement is most accurate?

The Framework presents several measurement bases and selection factors but is not a Standard and does not override specific IFRS requirements. Applying fair value to all assets regardless of the Standards would therefore breach IFRS, even though inconsistency across Standards is a recognised criticism.

  1. AThe Framework requires fair value for all assets, so the director is right
  2. BThe Framework prohibits any use of current values
  3. CThe Framework describes several measurement bases and factors for selecting them, and does not permit an entity to override specific Standards; the director's proposal would breach IFRS StandardsCorrect
  4. DThe Framework allows the entity to choose any basis for each asset provided disclosure is made

Explanation

The Framework sets out historical cost and current value bases (fair value, value in use, current cost) and says selection considers relevance and faithful representation, cost constraint and the nature of cash flows. It is not a Standard, so entities must follow the measurement required by specific IFRS Standards. Inconsistency is a recognised criticism, but unilateral fair value for all assets would breach Standards.

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