On Financial Accounting Measurement: A Reconsideration Of SFAC 5 By The FASB Is Needed

Abstract

This paper attempts to reinforce by means of social theory the procedure and property (attribute) of financial accounting measurement advanced by Salvary (1985, 1989, 1992). The procedure entails estimating the amount of cash flows derivable form existing investment projects; and the measurement property (attribute) is identified as recoverable cost. The cash-in and cash-out principle establishes financial capital maintenance as the appropriate capital maintenance concept to be followed in the measurement of periodic income. An analogy between a bank savings account and an equity security is used to identify the measurement property (attribute) and validate the additivity of financial accounting numbers. Problems with the monetarist model were used to demonstrate the appropriateness (stability) of the measurement scale (monetary unit). The logical analysis developed in this paper makes a compelling case for a reconsideration of Statement of Financial Accounting Concept No. 5 by the FASB.