Response to the FASB Discussion Memorandum "Present Value-Based Measurements in Accounting"

Abstract This article summarizes the response of the American Accounting Association's Financial Accounting Standards Committee regarding the Financial Accounting Standards Board's (FASB) Discussion Memorandum on Present Value-Based Measurements in Accounting. The charge of the American Accounting Association's Financial Accounting Standards Committee is to respond to requests for comments by standard setters on issues that relate to financial reporting. Although the comments submitted are those of the Committee and not those of the American Accounting Association, the Committee serves the purpose of increasing the Association's influence in this important area. In a theoretical world of certainty, the present value of future cash flows and market values are the same. That is, if the amount and timing of future cash flows are known with certainty, markets would price the assets and liabilities at the present value of the future cash flows. In the real world of uncertainty, however, the amount and timing of future cash flows are not known with certainty and can only be estimated. In this setting, the market price of an asset or liability, in principle, is the market's assessment of the present value of the related future cash flows.