Public Sector Accounting



Phase 3: Considerations of the measurement basis (or bases) that may validly be adopted for the elements that are recognized in the financial statements

The Background

There are a number of issues that are taken into consideration when we talk about the purposes of the eventual usage of reporting of financial statements, thus making it very important that when decisions are taken about gauging the assets and liabilities in the financial statements.

It has been observed that GPFRS (General Purpose Financial Reports) are reports that are made keeping in mind the needs of individuals. The basic users of GPFRS are recipients of the service as well as the providers of resources, and even their representatives as well. There are expectations that financial reporting will involve with the passage of time when responding to information needs of the users. Furthermore, public entities are more compact when it comes to their financial statements. They are also more comprehensive when it comes to notes, which is the core of financial reporting.

The basis of measurement that is most commonly adopted by the organizations when they prepare their financial statements can be historical cost. Other measurement bases are also combined with that. For instance, lower cost treatment of the inventories as well as net realizable value, market value is taken into consideration when calculating the marketable securities while pension liabilities are accounted at their present value. Some organization even might use basis of current cost when they respond to the lack of ability of historical cost accounting when they take into effect the ever changing prices of assets which are of non-monetary value.

The word of caution is that the framework that exists does not necessarily include measuring the units when we take into account the constant purchasing power of the customer. Next to proceed is the concept of capital and as well as the capital maintenance concept that comes into this framework. The basis of measurement is actual. The measurement basis is being used by all the accountants mostly, which includes the Australian accountants as well. The items that are valued include salaries, compensation, rents, prices that are being regulated when we take into account the concept of constant purchasing power in the period of low prices. Thus, this measurement framework is implemented top value only some of the income statement items those are constant, real value non-monetary items.

When it comes to the process of determining the actual monetary value at which the financial statements has recognized and carried into the prospective income statements and balance sheet. Due to this, there is a need for the particular basis of measurement. There are many bases that are considered, different strategies are involved, and many permutations and combinations are tried.

Measurement Basis for the Financial Statements

Some of the measures that are taken into consideration are given. First we will have the basic idea of what they mean; we will proceed with the details of the terms afterwards.

Historical Cost

The amount of cash, and the ...