Conceptual Framework for Financial Reporting

Faithful representation
When assets and liabilities are related in some way, using different
measurement bases for those assets and liabilities can create a measurement
inconsistency (accounting mismatch). If financial statements contain
measurement inconsistencies, those financial statements may not faithfully
represent some aspects of the entity’s financial position and financial
performance. Consequently, in some circumstances, using the same
measurement basis for related assets and liabilities may provide users of
financial statements with information that is more useful than the
information that would result from using different measurement bases. This
may be particularly likely when the cash flows from one asset or liability are
directly linked to the cash flows from another asset or liability.
As noted in paragraphs 2.13 and 2.18, although a perfectly faithful
representation is free from error, this does not mean that measures must be
perfectly accurate in all respects.
When a measure cannot be determined directly by observing prices in an
active market and must instead be estimated, measurement uncertainty
arises. The level of measurement uncertainty associated with a particular
measurement basis may affect whether information provided by that
measurement basis provides a faithful representation of an entity’s financial
position and financial performance. A high level of measurement uncertainty
does not necessarily prevent the use of a measurement basis that provides
relevant information. However, in some cases the level of measurement
uncertainty is so high that information provided by a measurement basis
might not provide a sufficiently faithful representation (see paragraph 2.22).
In such cases, it is appropriate to consider selecting a different measurement
basis that would also result in relevant information.
Measurement uncertainty is different from both outcome uncertainty and
existence uncertainty:
(a)
outcome uncertainty arises when there is uncertainty about the
amount or timing of any inflow or outflow of economic benefits that
will result from an asset or liability.
(b)
existence uncertainty arises when it is uncertain whether an asset or a
liability exists. Paragraphs 5.12–5.14 discuss how existence uncertainty
may affect decisions about whether an entity recognises an asset or
liability when it is uncertain whether that asset or liability exists.
6.58
6.59
6.60
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Conceptual Framework
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© IFRS Foundation

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The presence of outcome uncertainty or existence uncertainty may sometimes
contribute to measurement uncertainty. However, outcome uncertainty or
existence uncertainty does not necessarily result in measurement uncertainty.
For example, if the fair value of an asset can be determined directly by
observing prices in an active market, no measurement uncertainty is
associated with the measurement of that fair value, even if it is uncertain how
much cash the asset will ultimately produce and hence there is outcome
uncertainty.