Abstract Background Interest in measuring functional status among nondisabled older adults has increased in recent years. This is, in part, due to the notion that adults identified as 'high risk' for functional decline portray a state that is potentially easier to reverse than overt disability. Assessing relatively healthy older adults with traditional self-report measures (activities of daily living) has proven difficult because these instruments were initially developed for institutionalised older adults. Perhaps less evident, are problems associated with change scores and the potential for 'construct under-representation', which reflects the exclusion of important features of the construct (e.g., disability). Furthermore, establishing a formal hierarchy of functional status tells more than the typical simple summation of functional loss, and may have predictive value to the clinician monitoring older adults: if the sequence task difficulty is accelerated or out of order it may indicate the need for interventions. Methods This review identified studies that employed item response theory (IRT) to examine or revise functional status scales. IRT can be used to transform the ordinal nature of functional status scales to interval level data, which serves to increase diagnostic precision and sensitivity to clinical change. Furthermore, IRT can be used to rank items unequivocally along a hierarchy based on difficulty. It should be noted that this review is not concerned with contrasting IRT with more traditional classical test theory methodology. Results A systematic search of four databases (PubMed, Embase, CINAHL, and PsychInfo) resulted in the review of 2,192 manuscripts. Of these manuscripts, twelve met our inclusion/exclusion requirements and thus were targeted for further inspection. Conclusions Manuscripts presented in this review appear to summarise gerontology's best efforts to improve construct validity and content validity (i.e., ceiling effects) for scales measuring the early stages of activity restriction in community-dwelling older adults. Several scales in this review were exceptional at reducing ceiling effects, reducing gaps in coverage along the construct, as well as establishing a formal hierarchy of functional decline. These instrument modifications make it plausible to detect minor changes in difficulty for IADL items positioned at the edge of the disability continuum, which can be used to signal the onset of progressive type disability in older adults.