The Objectives Of Financial Reporting And The Measurement Of Assets

The essay studies issues concerned with the measurement of assets under normative method. As the purpose of choosing among various measurement models for assets is to provide quantitative information that satisfies the objectives of financial reporting, the essay tries to derive a measurement model for assets from the objectives of financial reporting. To reach this goal, the objectives of financial reporting are first examined and it is proposed that the objectives of financial reporting consist of two independent ones, namely recourse allocation decision usefulness objective and stewardship objective. Then, the capital circulations of enterprises are analyzed. They are divided into two types: industrial capital circulation and financial capital circulation. It is found that, since the profit-earning model and risk characteristics attached to different types of capital circulation is different, information users may require different information for the two types of capital circulation. On the basis of this conclusion, the essay sets out to explore how to determine the measurement models for assets so that the information demand of users may be satisfied. A method based on accounting measurement objectives is proposed to study accounting measurement issues. Two accounting measurement objectives are suggested, namely enterprise's performance and enterprise equity value. The role of the two measurement objectives in providing useful information under the industrial capital circulation and financial capital circulation is analyzed respectively. A conclusion is finally reached: for the assets that belong to the industrial capital circulation, the use of enterprise's performance as a measurement objective (i.e. historical cost accounting) will enable the financial statements to provide information that better satisfies the two objectives of financial reporting; for the assets that belong to the financial capital circulation, the use of enterprise's equity value as a measurement objective (i.e. fair value accounting) will enable the financial statements to provide information that better satisfies the two objectives of financial reporting. The contribution of the essay is that it develops an analysis framework for the exploration of measurement models for assets, which consists of the objectives of financial reporting and the capital circulations of enterprises. Besides, the essay puts forward a method based on accounting measurement objectives for the study of accounting measurement issues, with the purpose to improve the information value of financial statements as a whole.