A Report on FAS 57

Fair-value measurement and presentation of an entity’s assets and liabilities result in increasing relevancy of financial statements information, so that readers of the financial statements will not have to make complex adjustments in analyzing the entity. Furthermore, the fair-value

The most obvious reason for the difference between the market value of equity and the book value of equity is the inability to record certain intangible assets such as brand value, customer loyalty, and perhaps most importantly, human capital. These intangible assets are likely to provide tremendous earnings growth in the future which determines the company’s market value. Notice also that the company’s choice of conservative accounting policies has the effect of depressing the company’s book value of equity.

SFAC No. 8 addresses the cost constraint on useful financial reporting, “Cost is a pervasive constraint that standard setters, as well as providers and users of financial information, should keep in mind when considering the benefits of a financial reporting requirement.” (SFAC No. 8 BC 3.47) However, the ability to place a dollar value and fully enumerate a cost or benefit is almost an impossible task for standard-setters. Additionally, there is no way to successfully identify and measure all of the economic consequences associated with a new standard. The FASB should be applauded though for advancing uniformity in accounting standards, however; uniform financial reporting suggests a one size fits all approach. “Smaller, non-publicly listed firms (and their auditors) argue that accounting standards are formulated mainly for larger, publicly traded firms” and that “compliance costs are disproportionately higher and the

According to the Notice to Constituents (v4.7), the FASC superseded all previous level (a)-(d) US GAAP (refers to the previous accounting hierarchy) standards by a standard setter. This means that all other accounting literature not included in the Codification is non-authoritative.

Several internal factors can influence the valuation of a company, however, in the subsequent are some factors that will assist management in protecting its shareholders. The first reason is the desire to generate profits for the company, as a profitable firm will attract investors. Secondly, the need to improve the management of a company can lead to valuation as the information can be used to spur growth. Valuation will assist in understanding some of the factors affecting the value of the company such as client relationships, financials, image, technology employees, and marketing. Proper management is implemented after identifying the issues affecting the organization’s value. Thirdly, communicating to the public accurate and current information is essential in attracting investors and maintaining transparency, which builds the company image.

Don E. Garner, D. L. (2008). Accounting and the global economy after Sarbanes-Oxley. London: M.E Sharpe.

In the 1970’s, the SEC and the FASB were considering making accounting and financing regulations more important in the business

Correct valuation of real assets can present challenges to financial analysts. Different models can be used to arrive at the closest estimate of value and yet certain issues will always arise.

The fair value of an asset is defined as ‘the price that would be received to sell an asset paid to transfer a liability in an orderly transaction between market participants at the measurement date” (Kieso, Weygandt, & Warfield, 2012). It is a market based measure (Averkamp, 2014). Over the past few years, Generally Accepted Accounting Principles has called for the use of fair value measurement in a company’s financial statements. This is what is referred to as the fair value principle (Kieso, Weygandt, & Warfield, 2012). The fair value of an asset or liability is based on an estimate of what the asset should be worth at the time of sale. This gives rise to some conflict among accounting professionals. It is believed that fair value may not be as accurate

5. The FASB and IASB are actively seeking to eliminate differences between US and international accounting standards.  However, investment properties are reported under the cost model in the US, while IFRS allows either the cost or fair value model.  Should FASB also allow the

Financial world is at the pace when the accountants are moving their steps towards fair value accounting, moreover FASB and IASB is motivating accountants to increase the use of fair value accounting by establishing new rules. Most of the people concur that fair values are the most reliable measure for financial assets and liabilities that an entity strongly trades, on the other hand some believes if management wants to hold an asset or liability till their maturity then historical method is best for measuring financial assets.

Furthermore, management using Fair Value Accounting may intentionally over-value assets to improve the financial position of the company, as asset appreciation is recorded as revenue. Watts' (2003, 2) points out that Enron's ability to manipulate 'fair values' and WorldCom's capitalisation of unverifiable unused capacity, were factors in those particular accounting scandals.

Fair value accounting, also known as market to market accounting is issued by FASB 2006 based on rule FAS 157 (Laux, C & Leuz C 2009). It’s widely adopted by international companies around the world ever since it’s set out as the US Generally Accepted Accounting Principles (US GAAP) and the International Financial Reporting Standards (IFRS) (Veron, N 2008).

1 The system of the market is not perfect enough. For the lack of effective management of listed companies, the false accounting information disclosure, application of fair value is facing high risk. The government's intervention on the market also is relatively common, causing the price of resources often deviate from the market. Market information can't fully reflect the real

Fair value measurement had gained its hold decades ago in various western world. Relevant jurisdiction and accounting standards had authorized fair value as essential recognition of balance sheet and income [ WR LandsmanFair value accounting for financial instruments: some implications for bank regulation 2006, BIS working paper 209, University of North Corolina Kenan-Flagler Business school]. On 1st August 2008, the scenario behind accounting practices in Malaysia face a regulatory change with the introduction and adoption of FRS 139 “Financial Instruments: Recognition and Measurement” with effective date of 1st January 2010. This is deemed as the first step in recognizing fair value accounting as a reliable and updated practice or model.