Accounting Theory

Accounting Theory. Recognition and measurement of financial assets and liabilities provides the requirements for the recognition and measurement of financial assets, liabilities, and some contracts involved in buying and selling of non-financial items. When an entity becomes a party to the contractual provisions of a financial instrument, there is an initial recognition of that instrument. Financial instruments are categorized into different categories depending on their types which determine the subsequent measurement of the instrument. During recognition and measurement, there are special rules that apply. These rules are proposed by the Financial Accounting Standards Board (FASB) under the accounting standards update. The FASB in February 14, 2013 issued a proposal of improving financial reporting by offering a detailed measurement framework for categorizing and measuring financial instruments.

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These qualities are supported by the proposed draft which indicates that when a company is reporting its financial statements it should ensure that they are complete and have consistency so that comparisons can be made in future in the process of authenticating them.

More important, information presentation has a great impact with the authenticity of that information since in case of any question; comparisons can be used in solving the problem. On the other hand the authors’ sentiments differ with the provisions of the proposed draft in that the draft indicates that all equity investments should be measured at fair value and changes in the fair value should be recognized in net income. However, the authors assert that the changes in fair value could be recognized in the gross income. Accounting Theory.  


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Weygandt, J. & Barth, M. (1993). Response to the FASB Discussion Memorandum ‘Recognition and Measurement of Financial Instruments’. Accounting Horizons, 7(3), 95-104. Accounting Theory.