Theory in Action 5.

1. What do you think the authors mean by a principles-versus a rules-based system of

accounting?
The authors means to compare between the principle based and the rules based and to
found how specific a standard is in regulating the reparation of financial statements in
accounting system.
2. What are the measurement problems they allude to?
The measurement problems that they allude to is the fair value measurement, because
the definition of fair value itself is left ambiguous primarily because there are no
discussion of the underlying conceptual framework of valuation which has been fully
explored else where in professional literature using the concept of “deprival and relief
value”.
It is not clear whether the board has come to a view on these conceptual issues and
now the board is merely avoiding these issues
3. What does Macve mean by the underlying conceptual framework? What problems
doe she see with a fair value approach the underlying conceptual framework is a basic
framework that provides an explanation of the nature of the elements of financial
statements, their limitations, and the main objectives of reporting. Macve sees that the
absence of underlying conceptual frameworks causes ambiguity in valuation methods.
4. Do you think there is any difference between measures and values?
Yes there is difference between measures and values. What is meant by “value” is
economic benefits which are expected to be generated by an asset / cash generating
unit. While “measures” are the monetary unit of an element displayed in financial
statements.

Case study 5.1

1. Evaluate the advantages and disadvantages of each suggested measurement
technique.
2. Make a recommendation as to which measurement technique should be used.
3. Would you consider using more than one measurement technique? Why or why
not?