Conceptual Framework for Financial Reporting

Characteristics of the asset or liability
The relevance of information provided by a measurement basis depends partly
on the characteristics of the asset or liability, in particular, on the variability
of cash flows and on whether the value of the asset or liability is sensitive to
market factors or other risks.
If the value of an asset or liability is sensitive to market factors or other risks,
its historical cost might differ significantly from its current value.
Consequently, historical cost may not provide relevant information if
information about changes in value is important to users of financial
statements. For example, amortised cost cannot provide relevant information
about a financial asset or financial liability that is a derivative.
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Conceptual Framework
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© IFRS Foundation

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Furthermore, if historical cost is used, changes in value are reported not when
that value changes, but when an event such as disposal, impairment or
fulfilment occurs. This could be incorrectly interpreted as implying that all
the income and expenses recognised at the time of that event arose then,
rather than over the periods during which the asset or liability was held.
Moreover, because measurement at historical cost does not provide timely
information about changes in value, income and expenses reported on that
basis may lack predictive value and confirmatory value by not depicting the
full effect of the entity’s exposure to risk arising from holding the asset or
liability during the reporting period.
Changes in the fair value of an asset or liability reflect changes in expectations
of market participants and changes in their risk preferences. Depending on
the characteristics of the asset or liability being measured and on the nature
of the entity’s business activities, information reflecting those changes may
not always provide predictive value or confirmatory value to users of financial
statements. This may be the case when the entity’s business activities do not
involve selling the asset or transferring the liability, for example, if the entity
holds assets solely for use or solely for collecting contractual cash flows or if
the entity is to fulfil liabilities itself.