Conceptual Framework for Financial Reporting

Enhancing qualitative characteristics and the cost
constraint
The enhancing qualitative characteristics of comparability, understandability
and verifiability, and the cost constraint, have implications for the selection of
a measurement basis. The following paragraphs discuss those implications.
Paragraphs 6.69–6.76 discuss further implications specific to particular
measurement bases. The enhancing qualitative characteristic of timeliness has
no specific implications for measurement.
Just as cost constrains other financial reporting decisions, it also constrains
the selection of a measurement basis. Hence, in selecting a measurement
basis, it is important to consider whether the benefits of the information
provided to users of financial statements by that measurement basis are likely
to justify the costs of providing and using that information.
Consistently using the same measurement bases for the same items, either
from period to period within a reporting entity or in a single period across
entities, can help make financial statements more comparable.
A change in measurement basis can make financial statements less
understandable. However, a change may be justified if other factors outweigh
the reduction in understandability, for example, if the change results in more
relevant information. If a change is made, users of financial statements may
need explanatory information to enable them to understand the effect of that
change.
Understandability depends partly on how many different measurement bases
are used and on whether they change over time. In general, if more
measurement bases are used in a set of financial statements, the resulting
information becomes more complex and, hence, less understandable and the
totals or subtotals in the statement of financial position and the statement(s)
of financial performance become less informative. However, it could be
appropriate to use more measurement bases if that is necessary to provide
useful information.
Verifiability is enhanced by using measurement bases that result in measures
that can be independently corroborated either directly, for example, by
observing prices, or indirectly, for example, by checking inputs to a model. If a
measure cannot be verified, users of financial statements may need
explanatory information to enable them to understand how the measure was
determined. In some such cases, it may be necessary to specify the use of a
different measurement basis.
6.62
6.63
6.64
6.65
6.66
6.67
6.68
Conceptual Framework
© IFRS Foundation
A77

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