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A dual measurement and financial reporting system

This article debate about accounting measurement has always been framed in terms
of making a choice between fair value and historical cost. But it need a sacrificing in
choosing between histrorical cost and fair value which are both are important in the
IASBs Conceptual Framework.

Fair value and historical cost can be the solution to the problem which both are useful
to investor. At the time acquisition, both measurement are equal but they do normally
digress in subsequent period. Moreover, both measurement provide different
information and serve different purpose.

Fair value is needed for ranking and sorting out competing investment alternative. It
also to report how much the entity invested to acquired an asset as it does not offer
any insights about the quality of the investment. To assess that quality, user need to
know the expected benefit in investment will bring in the future. Fair value reporting
provide investor with useful information about expected benefit from certain
inverstment which need to be cautions on fair value estimates realibility. However,
there are significant problem with the fair value measurement. With fair value alone
cannot help the investor to properly evaluate stewardship which is the careful and
responsible management fund. Financial statement users would not know how many
resources the management has paid to obtain that fair value.

Meanwhile for historical cost is useful for stewardship and control decision as it tracks
the amount paid for resources. A given resource owned by two different entities will
have same fair value at any time but fair value does not inform investor that one
entity has probably paid difference price for the same asset. Futhermore user also
need to know historical cost of the investment. Howeverthe best solution is to
understood the concept of profit in the excess ofselling price over histrorical cost.
Decision is depends on whether there is a favorable spread between revenue and

Thus, both measurement are important to the financial statement user. Historical cost
and fair value should not be considered as competitors as both have their respective
advantages. A dual measurement and reporting model could be more effective for
assessing the success of an investment. Comparing fair value with historical cost
would improve the ability of financial statement user to evaluating both past
performance, hence fulfilling a stewardship objective and to predict future
performance, hence fulfilling a decision useful objective.

As conclusion, fair value is important to finacial statement users. It can be proof by

delincating the theoretical background for its adoption and providing evidence on its
usefulness to investor. Moreover, it also makes some suggestion for standard setting
and policy making decison.

In this article the supporter of fair value accounting have argued that fair value for
asset liabilities reflect current market condition and hence provide information right
on time. On the other hand, opponents claim claim that fair value is not relevant and
potentially misleading for assets especially to maturity that price could be disorted by
investor irrationally or liquidity problem. With this reason, a return to histrorical cost
accounting often comes up for discussion.

Moreover, fair value and historical cost should not be considered as competitor as
they serve different purpose and have their own advantage to the financial statement
users. Therefore, the adoption of a dual measurement and reporting system should
be considered and conclude both measurement cost should be provided as by being
together they can deliver complete and useful information to investor.