Usefulness and Reliability of Information Provided By Corporations

1474 WordsJun 16, 20186 Pages
An ongoing concern in financial reporting is the usefulness and reliability of information provided by corporations. The financial accounting standard board defines usefulness as the information that is useful for the users in decision making (FASB, 2011). Reliability is inferred when the information is verified, objective, and can be relied on. Therefore, Statement of Financial Accounting Standards No. 157 standardizes the valuation and disclosure of fair value for assets and liabilities in order to achieve both usefulness and reliability. The reasoning for the hierarchy was due to the inconsistency in previous definitions and guidance (FASB, 1992). Introduction to Fair Value Hierarchy To begin, SFAS defines fair value as the value…show more content…
SFAS Relating to the Conceptual Framework The framework for measuring fair value is easy to understand and follow, and relates to the conceptual framework. As stated earlier the preferred measure of fair value is the market approach, because the prices are observable. For this reason the standard recognizes the need for relevant, reliable, and comparable information in order for users to make better decisions about the current financial position of a company. Financial readers are aware of the valuing measurement used to calculate the fair value, whether the measurement were derived from an observable or unobservable input. The measurement establishes the existence of reliable and relevance qualitative factors that make accounting information useful for decision making (Barbera, 2007). If it were observable then the value derived can be researched and verified. However, if it were unobservable then the user must read the disclosures which will be discussed later in the research paper, and determine the reliability of the internally generated measurement. In return it can be understood that the level 1 inputs are more reliable and relevant than the other two levels. In addition, the fair value hierarchy also enhances the comparability and consistency of information among companies due to following practices: all companies must
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