Is Fair Value Accounting Should Be Responsible For The Global Financial Crisis ( Gfc )

Auditing financial statements whose items are based on fair values are difficult because these values are often determined using assumptions which are subjective.

Morris Mining Corporation owns and operates mining facilities that are located in the United States, and Canada. This company primarily distributes extracted ores and minerals to their customers. Recently, in January 2015, Morris Mining acquired the mining company King Co. Once the company has been acquired, Mining Morris plans to record the difference of the purchase price and identifiable net assets as goodwill. The identifiable assets and liabilities of King Co. are going to be recorded at fair value on Morris Mining 's books. There has been discussion as to how the company is going to report the fair value for the patent that is part of the assets they acquired from King Co. Rob, an audit manager on the Morris Mining engagement, and Gabriela, the audit senior, are trying to evaluate if the method of the fair value estimate it reasonable.

The fair value measurement of the Mortgage-Backed Security investment shall be categorized within Level 2 of the fair value hierarchy. According to ASC 820-10-35-52, “Level 2 inputs include the following: a. Quoted prices for similar assets or liabilities in active markets”. These inputs included quoted prices in active markets for similar MBSs with insignificant adjustments for differences between the MBS held by FFC and similar securities. In Q4 of 2012, the prices for transactions didn’t reduce the relevant to the fair value measurement. Therefore, the fair value measurement of this MBS should be classified into Level 2 of fair value hierarchy.

In 1865, nearly ninety years after the founding of the United States, the Thirteenth Amendment to the Constitution was ratified, thereby abolishing the “peculiar institution” which had once threatened to end the Great Experiment of American Democracy. Two subsequent amendments, ratified in 1868 and 1870, guaranteed equal protection of the law to all citizens and prohibited the denial of voting rights on the basis of race, color, or previous condition of servitude. Yet, close to one hundred years after these three Reconstruction Amendments became the law of the land, racial equality was still something confined to the dreams of visionaries and activists. Writing a letter from Birmingham Jail in Alabama, civil rights leader Martin Luther King

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.

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.”

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.

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.

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.

To be ethic, to be responsible to the society should be the new role of accounting in society. That’s the reason critical perspective accounting have been put forward. It is a theory that questions prevailing social order and how accounting practices actually contribute to inequities. One breach of it is to provide a sustainability report or tribe bottom line that report the social, environment and economic.

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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.

IFRS 13 provides a principles-based framework for measuring fair value in IFRS. This is based on a number of key concepts including unit of account; exit price; valuation premise; highest and best use; principal market; market participant assumptions and the fair value hierarchy. Fair value is an important measurement on the basis of financial reporting. It provides information about what an entity might realize if it sold an asset or might pay to transfer a liability. In recent years, the use of fair value as a measurement basis for financial reporting has been expanded. Determining fair value often requires a variety of assumptions as well as significant judgment. Thus, investors desire timely and

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

It has been become an issue of great concern that the accounting profession must find a common theory in order to address and put the issue at rest. This therefore, has called for the study of this topic under review “the demand for and supply of accounting theories: the market for excuses. As a result of this several questions have been raised. For instance, the question of why accounting theories are predominantly normative has been put forward by this article? Secondly, why no single theory in accounting profession that is generally or widely accepted? It has been argued that the financial accounting theories have been found to be ineffective most especially in the area of impacting accounting practice and policy, though, this has been