Cost-Benefit Analysis of Mixed Measurement Model

Since the current financial reporting uses various measurement attributes for measuring assets and liabilities, it is often referred to as the “mixed measurement model.” This paper addresses the issues related to why and how different measurement attributes, notably fair value and historical cost, are used in financial statements. The cost-benefit analysis is adopted as a research methodology throughout this paper by formalizing as mathematical functions the preparer’s measurement cost and the users’ benefits of accounting information that the preparer produces. The cost-benefit analysis suggests that the mixed measurement model can be justified through the preparer’s economic incentives for minimizing cost. It also suggests that the cost-minimization solution in the marketplace would represent a consensus among the interests of the preparer and the users within a constraint in which only one set of accounting information is provided. This paper also identifies the situations in which providing two sets of accounting information is preferable.