Under US GAAP (FAS 157), fair value or mark-to-market is the amount at which the asset could be bought or sold in a current transaction between willing parties, or transferred to an equivalent party, other than in a liquidation sale. A fair value measurement requires an entity…
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Fair value accounting has cemented its place really well in the world of accounting on the grounds that it gives more relevant information to users. This method is a realistic approach that gives the actual worth of an entity. According to Patricia McConnell1, fair value accounting method requires the preparers of financial statements to adjust them according to the fair values. This requirement helps the investors to make a better analysis of financial statements. The primary objective of financial statement analysis is the comparative measure of risk and return. General purpose financial statements do not provide the required data for this comparative analysis without significant adjustments. A clearer picture of financial statements provides the investors with a chance to make good decisions.
“…fair value accounting method gives fair value estimates and discloses a range of possible outcomes which may help a sophisticated investor but at the same may plague the unsophisticated investor with ambiguity and information overload.”
Fair value’s biggest drawback, and the major reason of its opposition, is the lack of reliability. It is because unless an asset is exchangeable in an arm’s length transaction, its value would always be an estimate. According to a study by Avinash, Arvi & Alan Reinstein3, critics have argued that fair value accounting method aggravated the recent crisis by requiring significant write-down of assets and hence resulting in sharp decreases in regulatory capital of banks and other financial institutions. Fair values tend to fluctuate vastly in a short period at times. According to Michael Power4, there are many arguments against the fair value accounting method but they don’t automatically become arguments in favor of historical cost accounting method. The definition of fair value shows that it is the amount which might be obtained in a market. Various commentators have argued about
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(Fair Value of Accounting Research Paper Example | Topics and Well Written Essays - 1250 Words)
“Fair Value of Accounting Research Paper Example | Topics and Well Written Essays - 1250 Words”, n.d. https://studentshare.org/miscellaneous/1571727-fair-value-of-accounting.
International accounting is regulated by International accounting framework. This reports briefs about the concept, usefulness, and implications of International Accounting. This report is containing all the research of International Accounting Standards, UK GAAP and European rules and regulations about Accounting.
Investigators have claimed that more than half of the global capital which was being pooled in from one end of the corner to another by the implication of financial products, have wiped out. There were a couple of factors that backed up the crisis including the low credit history borrowers who applied for subprime loans etc (Broadley).
36-38). Many experts have tried their best to defend this system, however, other have criticized it strongly. Furthermore, the current financial recession has ignited this debate to great limits. In fact, there have been some amendments in the current Fair Value Accounting, however, the essence of it remains the same, and the debate goes on.
ii) The inputs thus provided has to be for the full life term of the financial instruments which are considered above. iii) Any financial instruments not discussed above has to be valued under a similar input valuation techniques based on the given market data.
Accounting Fraud, earnings manipulation, and creative accounting Introduction Overtime, there have been high profile cases detailing fraudulent financial reporting such as those at Enron and WorldCom. This has heightened concerns on the credibility of the U.S.
Since the US GAAPs are also closely linked to IFRS, FASB wants to bring some change in those GAAPS. To move towards fair value accounting, it published a statement on which it defined fair value accounting and provided some guidelines regarding it it also issued a standard in 2007 giving companies an alternative to value assets and liabilities at fair value .
Since the amendment is at the proposal stage, private entities undergoing combinations are under no obligation to effect such in their recognition, measurement, recording, and reporting of identifiable intangible assets arising from such business
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