Characteristics:
- Transparency: full disclosure and fair presentation and reveal economics of the company
- Comprehensiveness: should include all kinds of transactions including new types
- Consistency: Similar transactions should be accounted for in similar ways
Barriers to creating coherent financial reporting framworking
- Valuation: Measurement bases for valuation that require little judgment may be less relevant than a basis like fair value that require more judgment
- Standard setting: Three approaches
- Principle-based approach: relies on broad framework (IFRS)
- Rules-based approach:Specific guidance on how to classify transactions (US GAAP)
- Objectives-oriented: Combination of the two approaches
- Measurement: trade off between
- Valuing the elements at one point in time (Balance sheet)
- Asset/liability approach:
- Value the changes between points in time (income statement)
- Revenue/expense approach
- Valuing the elements at one point in time (Balance sheet)