The Essential Requirement Of An Objective Is Fair Value

When the FASB originally deliberated Statement 144, it considered and rejected requests for a limited exception to the fair value measurement for impaired long-lived assets that are subject to nonrecourse debt. Some constituents believed that the impairment loss on an asset subject entirely to nonrecourse debt should be limited to the loss that would occur if the asset were put back to the lender. The FASB decided not to provide an exception for assets subject to nonrecourse debt. In its basis for conclusions, the FASB explained that the

All businesses and organisations have to check to see that the information they have stored is accurate. For example, the money coming in and going out have to be correctly recorded otherwise it will look as if the company has not made much profit and it can affect the share prices of the company, affect the employees as the company might not be able to pay the employees and will have to cut down on staff, lenders will not agree to lend money, etc.

The guidance in the Distinguishing Liabilities from Equity Topic applies to any freestanding financial instrument, including one that has any of the following attributes:

ASC 820 requires that the measurement of fair value of assets acquired and liabilities assumed should be based on the

Quality of reported financial information is a critical element in evaluating financial statement data. The higher the quality of financial reporting, the more useful the information is for business decision making.

Items of value to a company such as equipment or supplies needed for running an efficient business are called an asset. A liability is when a company owes for a service or pay for employees. After a liability is subtracted from an asset this becomes the owners interest in the company or owners’ equity. Regardless of the standards followed by accountants, they will always classify accounts into these three categories resulting in the Accounting Equation: (Editorial Board, 2012, p. 9- 10)

Representations are faithful if there is a correspondence or agreement between the accounting measures or descriptions in the financial reports and the economic phenomena they purport to represent (FASB, 1980: 6; FASB, 2005: 3). The difference between reliability and a faithful representation is ambiguous. Since the attributes neutrality, completeness and substance of economic phenomena (substance over form) can be classified as qualities of faithful representation, reliability becomes redundant. Consequently, a point of attention is to discuss what exactly the notions reliability and faithful representation mean and what they do not mean (FASB, 2005: 2-3).In both frameworks neutrality is defined as free from bias. 'To that end, the common conceptual framework should not include conservatism or prudence among the desirable qualitative characteristics of accounting information. However the framework should note the continuing need to be careful in the face of uncertainty' (FASB, 2005: 3).

If an entity has a recent fair value calculation for a reporting unit, it also should include as a factor in its consideration the difference between the fair value and the carrying amount in reaching its conclusion about whether to perform the first step of the goodwill impairment test.”

An assumption inherent in an enterprise 's statement of financial position prepared in accordance with generally accepted accounting principles is that the reported amounts of assets and liabilities will be recovered and settled, respectively. Based on that assumption, a difference between the tax basis of an asset or a liability and its reported amount in the statement of

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

The Objective List Theory expresses the ideology that all objective goods in the real world, not limited to only experiences or feelings, have value and are intrinsically good. Examples of these objective goods include meaningful knowledge, pleasure, autonomy, achievements, freedom, relationships with people, love, and even unhappiness. The Objective List Theory is predominantly applicable in all cases because it encompasses more specific theories, for instance the Mental State Theory, so this prevents being limited to one particular segment. There are aspects of the Mental State Theory and Hedonism that the Objective List Theory envelops that makes it the most accurate in every case. The Objective List Theory is most accurate because it considers most people’s goals in life. By reaching those goals, people are generally happier and are said to have lived better lives than those of which that do not achieve their goals. For instance, the goal of having a job can be associated with objective goods such as autonomy, achievement, and freedom.

However, an asset is only recognized as per AASB 116 in financial statement if it is probable that the future benefits from the asset will eventuate and if the item has a cost or value that can be measured. (Leo, Hoggett & Sweeting, 2012) The term probable is means the like for the future benefit is higher than less likely to happen. An element will be considered as an asset only if it satisfy the probability of providing future benefits. (Aasb.gov.au, n.d.) An item will usually have a cost or value to use to measure reliably. The measurement of asset is made at its cost and appropriate measurement basis will be based upon model of accounting being applied. (Aasb.gov.au, n.d.) Items that so not have a cost or cannot be measured reliably cannot be considered as an asset. (Aasb.gov.au, n.d.)

* To recognise separately, at the acquisition date, the acquiree’s identifiable assets, liabilities and contingent liabilities.

The Financial Accounting Standards Board has issued for public comment two Exposure Drafts related to its disclosure framework project. The first exposure draft proposes amendments to Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting, Chapter 3 – Qualitative Characteristics of Useful Financial Information. The purpose of this proposed amendment is to clarify the concept of “materiality”. FASB defines materiality as, information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report. Consequently, the Board cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

“Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement. This involves the selection of the particular basis of measurement.” (Measurement Bases for financial accounting, 2005)