Fair Value Accounting Within Financial Crisis Essay

Fair value measurement has been argued to be one of the most controversial areas in accounting. Although not a new concept many accounting professionals have only in the past two decades warmed up to the theory as a means of replacing the long standing historical cost approach applied to reporting of financial statement. This deviates from centuries of traditional application of historical cost. It is maintained in literature that fair value accounting

Penman (2007) had stated that historical cost may provide useful margins on turnover for forecasting operating cash flows in a going concern business. On the other hand, when valuing a portfolio of marketable investments with fair value, it tends to be more reliable. Stakeholder of Woolworths includes investors, creditors, lenders and so forth, their needs of accounting information are different. Some of the investors are interested in the information using fair value approach for them to decide whether to buy or sell their shares, some of the lenders and creditors are interested in the current value of assets and liabilities of the entity to decide the ability of the entity to pay off a debt when due. Further, a particular stakeholder need more than one measurement approach to satisfy their needs of accounting information (e.g. considering to engage with Woolworths). Therefore, mixed measurement approach would be more appropriate to satisfy each stakeholder needs of accounting information (Rankin et al., 2012; Dvorakova, D., 2011).

Financial statements are used to determine the business activities of a firm and the role of accounting analysis is to determine the accuracy and quality of the information provided. This analysis would look into the degree of its accounting figures captures its business reality through the policies used and its resulting noise, potential forecast errors and its impact on Myer’s profit.

The changing nature of business from cost-bases assets and liabilities to more market-oriented assets and liabilities drove the move towards increasing use of fair value accounting. Under the momentum, a measure like net income

For our project, we wanted to pick the topic, “Is fair value accounting really fair?” The first part of our presentation was simply explaining what fair value accounting is. This is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transactions. According to the Financial Accounting Standards Board, the price that would be received to sell an asset or price to transfer a liability in an orderly transaction between market participants at the measurement date is the idea behind Fair Value accounting. FASB came up with SFAS 157 to improve this accounting principle. Some of their objectives were to “provide a framework for fair value measurements, change the definition of fair value, elaborate on the concept of market participants.”

It can also be explained why the accountant will choose lower assets, lower profits and higher liability value. It can be explained as it is better to be able to pay off all losses and earn no profit than pay an interest on profit you haven’t earned.

Over the past several years, there has been a growing controversy over the accounting issues of fair values and historical cost. The basis of this controversy revolves around which one of these principles is the most accurate. There are many different viewpoints on this issue. Many accounting professionals believe that fair value is just as accurate as the historical cost principle, while others believe that the historical cost is more reliable. The facts about each of these valuation methods will be researched and explained throughout this research document, as well as the different viewpoint about which method is the most accurate and reliable.

Secondly, fair value model offers more accurate balance sheet and income statement. The fair value model lists investment properties on the balance sheet at their fair value. Any changes in fair value are recorded directly to the income statement as other gains or losses. Therefore, under fair value model, investors can obtain more relevant and accurate information.

In 2004 the Financial Accounting Standards Board (FASB) released Statement No. 123 that “established a fair-value-based method of accounting for share-based

Regulation is defined as a set of rules that is designed to control and govern conduct by authority (Deegan 2009, p.59). On the basis of this definition, Deegan (2009, p.59) has defined regulations relating to financial accounting as rules that are developed by independent authoritative body to govern the preparation of financial statements which are accounting standards. Since decades ago, there have been arguments for and against the existence of accounting regulations. With a stance of pro-regulation, this essay is going to examine the reasons that financial accounting and reporting should be regulated and the merits of accounting regulations.

Along with active capital market and the rapid development of science and technology, the fair value measurement will increasingly shows its rationality and necessity, is bound to further enhance and improve the quality of accounting information system.

ACC307 INDIVIDUAL ASSIGNMENT TASK 1: Contemporary Issues of Accounting Theory Fair Value Measurement Overview After the International Accounting Standards Board (IASB) released the IFRS 13 Fair Value Measurement in May 2011 for the purpose of completing its joint project with the US Financial Accounting Standards Board (FASB) on fair value, the Australian Accounting Standard Board (AASB) released the Australian equivalent - AASB 13 Fair Value Measurement in the September of the same year. This standard permitted early adoption but generally started to take effect for the financial reporting periods beginning from 1 January 2013. This new standard requires no new requirement for the adoption and but it was accompanied with the issuing of AASB 2011-8 Amendments to Australian Accounting Standards arising from the AASB 13 which has made consequential changes to 32 standards and 9 interpretations for the adoption in Australia. The new standard attempts to unify IFRS and US GAAP by specifying how entities should apply the fair value measurements that applied in previous IFRS standards. It clarifies and redefines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”, sometimes referred to as an “exit price”. It also sets out a single source guidance for a robust measurement framework to ensure that the requirements are applied consistently and have clear

The two fundamental qualities that make accounting information useful for decision making are relevant and faithful representation. In my opinion, I think both are important quality of accounting information. In order to be relevant you need to have predictive value, and confirmatory value, or both for making decisions. For example, investors form their own expectations about the future based on the predictable value. They were able to evaluate. To be more clear, events such as in the past, present, or future like daily cash transitions are making a difference in the decision. While confirmatory value helps them confirms or

An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide

Therefore accounting methods are very much important in measuring the profit of the company and company must prepare their finical report by using the fair value and historical cost method simultaneously. However, true financial position of the company or business can be easily calculated by using the accounting methods that are more reliable and accurate. Therefore companies must use both historical and fairly value method to know the actual financial position of the company.