ABSTRACT
This chapter explains the nature of a Conceptual Framework, and what it can be expected to achieve. It also explains the objective of financial reporting, which is particularly relevant to the selection of a measurement basis such as historical cost or fair value. The chapter discusses why historical cost cannot be universally adopted in financial reporting, and hence why standard-setters need to identify alternatives such as fair value. It also discusses a number of arguments that seek to establish the superiority of fair value. The chapter argues that, at best, some are valid only in some circumstances, which suggests that the Conceptual Framework should address additional measurement bases and provide guidance as to how standard-setters should select the most appropriate basis in particular situations. The Conceptual Framework should also provide direction as to which measurement basis should be selected in what circumstances.
