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ACCA Applied Skills · Financial Reporting · Recognition and measurement

Under the IASB Conceptual Framework, which of the following is a factor to be considered when selecting a measurement basis for an asset or liability?

The relevance of the information a measurement basis provides to users is a factor in selection under the Conceptual Framework. Relevance, faithful representation and the cost constraint are considered, while competitor practice or directors' desire for higher profit are not valid factors.

  1. AThe relevance of the information the measurement basis provides to usersCorrect
  2. BThe measurement basis used by the entity's largest competitor
  3. CThe preference of the entity's directors for higher reported profit
  4. DThe basis that gives the lowest cost of preparing the financial statements in all cases

Explanation

The Conceptual Framework says that in selecting a measurement basis, the relevance of the information produced (about both the asset or liability and the income and expenses) and how faithfully it represents must be considered. Cost constraints also matter, but cost is a constraint, not an overriding aim, so the cost option is wrong. Competitor practice and director preference are not factors.

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