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Business and Policy Areas
Business and Policy Areas

GASB Proposes Measurement Concepts

June 27, 2013

On June 20 the Governmental Accounting Standards Board issued an Exposure Draft (ED), "Measurement of Elements of Financial Statements," that proposes concepts that must be considered when measuring assets and liabilities. The ED is related to the board's fair value project and intends to conceptually establish that fair value is a measurement attribute of assets and liabilities. The ED is a proposal of what will eventually become the GASB's sixth Concept Statement and can be downloaded from GASB's website.

The ED would establish concepts for measuring the elements of financial statements. The proposal addresses both measurement approaches and measurement attributes. A measurement approach determines whether an asset or liability that is presented in a financial statement should be:

  1. Reported at an amount that reflects a value at the date that the asset was acquired or the liability was incurred or
  2. Remeasured and reported at an amount that reflects a value at the date of the financial statements

In applying either measurement approach, various measurement attributes may be used. A measurement attribute is the feature or characteristic of the asset or liability that is measured. The ED establishes the following four measurement attributes that would be used in financial statements:

  1. Historical cost is the price paid to acquire an asset or the amount received pursuant to the incurrence of a liability in an actual exchange transaction. Historical cost is an entry price and can only be used when measuring initial amounts.
  2. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is an exit price. Fair value is suitable for use either as an initial amount or as a re-measurement amount.
  3. Replacement cost is the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the measurement date. Replacement cost generally is considered to be suitable only for assets that will be used in providing services, rather than assets that will be converted to cash.
  4. Settlement amount is the amount at which an asset could be realized or a liability could be liquidated with the counterparty, other than in an active market. A settlement amount can be either (a) the amount that the counterparty would accept to settle the liability or would pay to satisfy a receivable at the date of the measurement or (b) the amount that will be realized from an asset or will be needed to liquidate the liability in due course according to the terms of the arrangement between the government and the counterparty.

NACUBO's Accounting Principles council will study the ED and inform NACUBO's industry comment letter, which is due by September 30, 2013. NACUBO encourages public institutions to submit comments directly to GASB or send comments to NACUBO for inclusion in the industry comment letter. 


Sue Menditto
Director, Accounting Policy