Fair Value Accounting Is Worth Being Used

Fair Value Accounting Is Worth Being Used
There have been many debates in previous decades amongst the investors, users of the financial
statements, on whether fair value accounting is worth being used. According to IFRS 13, fair value
is "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". Usage of fair value has
advantages, however, it has disadvantages as well. This essay will discuss how fair value is more
advantageous than disadvantageous and how it is carried out. It will also examine how fair value led
Lehman Brothers, an American investment bank, into bankruptcy during the global financial crisis
and why the trend of fair value has emerged in the recent decades. ... Show more content on
Helpwriting.net ...
This is beneficial for the investors as it means that they can be confident that their decisions are
correct and that the finances of the business will not suddenly change.
Bubble prices can be an issue for investors as it may mislead them into making poor investing
decisions. There is plenty of empirical evidence to show that bubble prices exist (Ryan, 2008).
These price bubbles, according to Penman (2007), are introduced into financial statements through
the usage of fair value accounting. He goes on to say that this causes bubble gains to reflect on the
income statement, and these may, falsely, show the company as being healthy which could lull
investors into a false sense of security. These bubbles also result in the investor receiving ineffective
financial statements which will impair their decision making. An example of this would be where
investors pay prices that far exceed their own valuation (Scheinkman and Xiong, 2003). This would
make it tough for investors to earn a reasonable return on their investments. However, the research
fails to consider the difficulties locating price bubbles or how investors can prevent themselves from
being misled. It also fails to consider that bubble prices show the current trading price, albeit
inflated, and therefore show the true value of the investment according to current prices.
When there is
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New Zealand Financial Accounting. Essay
1 I n t r o d u c t i o n
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 ... Show more content on Helpwriting.net ...
While property at the fair value measurement can well reflect the changes, it can at any time on the
derivative financial instruments to measure the rights and obligations of reflection, and provide
relevant information to the users of the information.
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.
4 The challenges for the use of fair value measurement
The use of fair value measurement attribute to enterprise's development has a profound impact.
However, the use of fair value is faced with many challenges. Mainly embodied in the following
aspects:
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

Business Combinations
Business Combination Amendments
November 29, 2008
Introduction There have recently been a number of significant accounting changes due to FASB and
the International Accounting Standards Board (IASB) making modifications for the accounting
treatment of business combinations in SFAS 141(R) and IFRS 3. Business combinations have
implemented the newly created accounting treatment called the "acquisition method." It will replace
of the current "purchase method" strategy effective January 1, 2011. The major changes in the
acquisition method involve variations to fair value measurement, goodwill recognition, and non–
controlling interests.
Purchase method The purchase method was recommended for all business combinations ... Show
more content on Helpwriting.net ...
A requirement of this method is that the acquirer must be clearly identified in every business
consolidation. Below are several key component changes in the acquisition method:
Fair Market Value treatment Measurement of the subsidiary's net identifiable assts is based on the
fair value of the subsidiary as a whole, rather than based on the cost of purchase at the acquisition
date. The acquisition date is the closing date that the purchaser obtains control of the acquired
business. For example, the parent will still have full control of the entire subsidiary even if they
purchased less than 100% of the net identifiable assets. The parent includes the full fair value of the
subsidiary in the consolidated financial statements and then allocates to the non–controlling interest.
The key difference between the purchase method and the acquisition method is that in the
acquisition method, all of the FMV increment and all of the goodwill is recognized, including the
portion attributable to the non–controlling interest.
The justification behind this idea is that a business in control of another entity should be able to fully
control all of their assets and

Fair Value Accounting : The Gauge Of Reliability And...
The paper proposes research covering fair value accounting usefulness, the gauge of reliability and
relevance in accounting through times of early development, financial crisis and recent views. This
review aims to realize a comprehensive study of relevant literature in financial accounting with fair
value as the main topic. The review attempts to answer the question Is fair value relevant and
reliable for financial accounting? Does fair value signify decision useful information? What are the
basic properties of fair value and its contribution to the decision usefulness objective? To achieve
the proposed objectives, the review analyses .... Articles divided into three themes: various views of
fair value accounting, are fair values beneficial for financial users and applications issues and
recommended improvements. In this research the purpose behind each study in the field of fair value
is important. Fair value accounting has become a crucial principle of measurement internationally.
Much discussion covers the relevance and reliability of fair value. Therefore, constructing a review
on this subject based on past research is to improve the literature.
Theme 1: Various views on fair value accounting?
Standard setters
In accounting there are many perspectives on how fair value accounting is relevant and beneficial
for financial users. In the eye of standard setters assessing the quality usefulness of fair value
information is somewhat a common question for potential and current

Historical Cost and Fair Value
Abstract
This paper is written for the accounting theory course as a course project.
This paper discusses the differences between the historical cost accounting approach and the fair
value accounting approach. The discussion will focus on the debate on using which accounting
approach. We begin by stating the definitions of both concepts and discussing them thoroughly, then
we state the main advantages of the two approaches followed by comparison between them.
The last section of this paper discusses the disadvantages of each approach, including the main
criticism points against them.
In the end, we draw a conclusion on the best approach to be used in the Accounting profession based
on the previous discussion.
Introduction ... Show more content on Helpwriting.net ...
When fair values are estimated using unadjusted or adjusted market prices, they are referred to as
mark–to–market values. If market prices for the same or similar positions are not available, then
firms must estimate fair values using valuation models. FAS 157 generally requires these models to
be applied using observable market inputs (such as interest rates and yield curves that are observable
at commonly quoted intervals) when they are available and unobservable firm–supplied inputs (such
as expected cash flows developed using the firm's own data) otherwise. When fair values are
estimated using valuation models, they are referred to as mark–to–model values.
Advantages of Historical Cost
Supporters of Historical Cost Accounting argue that this method has several advantages that make it
popular. Some advantages are discussed below. * Historical cost is based on actual, not merely
possible, transactions. It is the acquisition price of the assets. The managers only have to record all
the assets and liabilities at their acquisition price. Hence they are measured and reported objectively.
Historical cost is therefore basically verifiable. Thus, this minimizes the risk of manipulation of
figures by the managers. * Historical cost has survived the test of time. Most users of accounting
data believe that accounting income is useful and that it constitutes a determinant of the practices
and thought patterns of decision makers. * Historical cost is an easier

International Accounting Standards Board 's Preferred...
Introduction
International Accounting Standards Committee (IASC, 2003) define an asset as a resource
controlled by the entity as a result of past events and from which future economic benefits are
expected to flow to the entity. In a business model assets act as inputs, either directly (plant,
machinery, inventory) or indirectly (goodwill, patents, investment property) to provide products and
services to the customer. As assets are expected to generate future benefits, the income generated by
these assets is reported under the Income Statement while their value is reported in the Balance
Sheet to deduce the value of the said business.
The focus of this report is the International Accounting Standards Board's preferred measurement
basis ... Show more content on Helpwriting.net ...
an exit price) (IFRS13). Fair value is the market value of a firm's assets and ignores any special
benefits of the assets to the business resulting from competencies such as man management skills as
well as any transaction costs (Hitz, 2007). Therefore a fair value measurement is market based rather
than entity specific and it represents unbiased measurements that are consistent from period to
period and across entities (Penman, S. H., 2007). This helps to reinforce consistency and
comparability across various reporting entities. Fair Value measurements also have the property of
objectivity as it is non–entity specific and reflects the market's valuation as compared to entity
specific measurements which are subject to managerial judgments (Whittington, 2010).
Entity specific measurements account for intangibles such as business competencies and managerial
know how, which gets reflected in the financial statements irrespective of whether they have been
demonstrated or not. Using fair value limits today's profit recognition to amounts market
participants would assess, and leaves to the future the recognition of profit associated with
management skill and synergies (Barth, 2010).
Hence we can conclude that market valuations incorporate market expectations regarding future
cash flows in an efficient and unbiased manner (Hitz, 2007). It can also be argued that fair value

Fair Value or Cost Mode Drivers of Choice for Ias 40
European Accounting Review
Vol. 19, No. 3, 461– 493, 2010
Fair Value or Cost Model? Drivers of Choice for IAS 40 in the Real
Estate Industry
A. QUAGLI∗ and F. AVALLONE∗∗
∗
Department of Accounting and Business Studies (DITEA), University of Genova, Genova, Italy and
∗ ∗ Department of Computer and Management Science (DISA), University of Trento,
Trento, Italy
(Received September 2008; accepted February 2010)
ABSTRACT The IFRS mandatory adoption in European countries is an excellent context from
which to assess the validity of accounting choice theory, which postulates that information
asymmetry, contractual efficiency (agency costs) and managerial opportunism reasons could drive
the choice. With this aim, we test the impact ... Show more content on Helpwriting.net ...
Our findings suggest that all the rationales described by accounting choice theory (information
asymmetry, contractual efficiency and managerial opportunism) drive the decision to adopt fair
value. Indeed, regarding contractual efficiency reasons in particular, we find that the larger the size
(proxy of political costs), the less likely fair value is to be chosen, while leverage and consequent
lenders' protection seems to be insignificant for the choice.
Furthermore, our results show that market–to–book ratio (MTBV) (proxy of information
asymmetry) is negatively related to the fair value choice. This finding, that conflicts with existing
literature, could be accounted for in the real estate industry due to the fact that high levels of MTBV
in this context reveal growth opportunities associated with a fair estimation of investment properties
and therefore with a low information asymmetry. Managerial opportunism behaviour, measured by a
dummy variable for earnings smoothing, seems to have an influence on fair value choice.
While all these variables seem to have an influence on the fair value choice, the same variables do
not explain the choice of historical cost with the IFRS1 revaluation option in preference to the cost
maintenance approach.
This paper offers various contributions to current

The Value Of Fair Value
The fair value option allow all entities to select and measure eligible items at a fair value at a
specified date. The decision involved in whether to elect the fair value option have following
conditions. The conditions include that it could be applied instrument by instrument, could be
irrevocable which means it cannot be changed and the last condition is applying only to instrument
and not to only specified risks, specific cash flows, or portions of that instrument. The fair value
option allows business entities to use fair value to measure specific financial assets and financial
liabilities in accordance with their own needs and in the initial and subsequent measurement. FASC
825–10–25
One of the main advantages of fair value accounting is that it provides a basis for reporting financial
information on a company to provide users with accurate valuation of assets and liabilities. When
the assets or liabilities of the price rising or are expected to increase, the company will be the value
of the assets or liabilities, to reflect it will get the assets or liabilities, to reflect its assets or will
receive payment to lift their responsibilities. On the contrary, the company marked the value of the
assets or liabilities, to reflect the market price of any ability decreased. The fair value accounting
limited a company, it may be possible to manipulate its net income sometimes. The management,
may deliberately arrange some asset sales, for example, the use of gains or losses,

Fair Value
This memo identifies the key issues that will need further investigations. Each of the following
sections would identify one key issue, explain how the issue would affect impairment test, and
summarize the sensitivity analysis conducted.
Customer Retention Assumptions
Customer retention/attrition is estimated by the Company to arrive at the adjusted revenue, however,
no support is provided for the 75% of probability of retention.(Exhibit XI) Retention rate can be
expected by conducting statistical analysis of historical customer turnover and revenue growth rates.
When historical customer data of sufficient quality is not available, it may be necessary to rely on
management estimates or industry data. Probability of retention is ... Show more content on
Helpwriting.net ...
2011 Valuation Edition Yearbook." (Exhibit VIII). We would like further clarification and
documentation surrounding this number, and would like to look into other sources that may estimate
small stock premiums of this size to compare the appraiser's estimates. * Additional Risk Premium
(ARP): Appraisal Professionals assumed that there should be no additional risk premium when
calculating a discount rate for MMN Builders. We would like further justification on why no
additional risk premium was chosen. For MMN builders, we question whether it is appropriate to
not include an additional risk premium to the WACC calculation, especially since the company is
undergoing a large impairment charge, a net sales decrease by 37%, a decrease in homebuilding
revenue of 26% and a decrease in net income of 85% over the last 12 months. * Effective Tax Rate:
The effective tax rate used in calculating the weighted average cost of capital is 38%, and this
number was justified as being "provided by management" (Exhibit VIII). Although effective tax
rates can be stable and we have no reason to not trust management's assumptions, we would like
further clarification on the evidence behind this number. Because the two divisions being test for
impairment are in different parts of the country (Northeast and Southwest), we have questions
concerning different tax rates that may be applied

Global Financial Crisis : Its Causes And The Global...
Assignment topic: Global financial crisis: its cause and the global responses
Introduction
The global financial crisis or economy crisis is commonly believed to have begun in July
2007 with credit crunch, when a loss of confidence by the US investors in the value of sub–prime
mortgages caused a liquidity crisis. On the other hand, due to the big changes that took place over
the last 20 to 30 years in the worldwide economy and the influence of 2007 financial crisis, it has
re–emerged as one of the hottest topics on the agenda of accounting standards setters both under
United States of America (USA). Generally Accepted Accounting Principles (GAAP) and
international financial reporting standard (IFRS). Current research seems well balanced across the
prospective and consensus of fair value, lending ammunition both to those in favour and to the
opponents of fair value accounting. Subjectivity, estimates and managerial discretion permeate the
concept, definition and measurements of fair value, leaving such measurements open to an
aggressive use of judgement and estimate. However, fair value accounting is more closely related to
the needs of a globalized and information–based economy and is likely to grow in importance and
use in the future. Therefore, this essay will discusses evidence and summarizes some current papers
on the informational impact of fair value measurements on market participants.
Additionally, it will examine the responses put forwards by developed nations.

Fair Value Accounting And Intangible Assets
Fair Value Accounting and Intangible Assets
The considerable debate on the advantages and disadvantages of moving towards a full mark to
market accounting system for financial institutions has been triggered by the move of the
International Accounting Standards Board (IASB) and the US Financial Accounting Standards
Board (FASB) to make changes in this direction as part of an attempt to globalize accounting
standards. Both fair value accounting and historical cost accounting have their advantages and
drawbacks and therefore it is hard to conclude which system is superior to the other. Within the
accounting systems, the valuation of intangible assets has been a constant source of attention by the
board as well. This essay summarizes the superiority of fair value accounting in measuring value of
certain assets and liabilities including intangible assets in light of the IASB discussion paper
released recently.
According to Rodríguez–Pérez et al (2011) the debate between the choice of Fair value and
Historical cost accounting essentially takes root from the debate of relevance and reliability. The
IASB Framework defines relevancy as when information "influences the economic decisions of
users by helping them evaluate past, present or future events or confirming, or correcting, their past
evaluations."Reliability as defined by the IASB framework is when information is faithfully
represented, prudent, it contains substance over form, it is neutral, and complete. Even though both

Fair Value
| Abstract This document is concerned with the relationship between the financial crisis and fair
value accounting. Its purpose is to make an understanding of the strengths and limitations of fair
value accounting. The report also gives some examples of fair value accounting measures used in
several Australian companies. In this report, City Weat Water LTD and JB HI–FI LTD are used to
explain that. Introduction With the modern transportation and communication technology
development, in the industrial society, the segmentation of market is going to be narrow and towards
the integration of world economy. The traditional historical cost based on the transaction price
measurement is no longer the only reliable source of information. Fair ... Show more content on
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In other words, it means the information provided by the company can actually affect the decision
making of information users and satisfied the needs of information users. Compared with other
accounting methods, fair value accounting can get a more accurate disclosure of a company's cash
flow, and better reflect the company's operation ability, solvency and financial risk assumed. So that
the users of financial report can be better informed of the entity's financial position and operating
performance, to help them to make the right decision. As fair value accounting provides information
about current market conditions, it is the most relevant measure for assets and liabilities. For one
thing, fair value accounting measure can obtain intangible assets in to financial reports, such as
intellectual property rights, human recourses and goodwill etc. make the information of financial
report more complete to reflect the financial position, profitability and the ability to face risk. For
another, fair value represents the present value of future cash flows, so investors just need the fair
value of assets or liabilities and estimates the market interest rate, they could calculated the expect
value of assets or liabilities in a certain point in future. Moreover, fair value accounting is a market–
based accounting, so it more relevant to the decision making. In an effective market, fair value is
reflecting market price of assets or

Fair Value Accounting And Financial Reporting
Introduction
In today's businesses, there has been an increase in the demand for financial reporting and also, the
need to have reliable measurements of fair value and its disclosures. The need for reliable
information has caused continuous change to accounting policies which has posed a challenge not
only to management of companies, but also to auditors. The frequent changes in accounting
principles pose a challenge for managers in measuring accounting estimates accurately and are an
exceedingly difficult task. Fair value accounting is a financial reporting approach in which
companies are required to measure and report on an ongoing basis certain assets and liabilities at
estimates of the prices they would receive if they were to sell the assets or would pay if they were to
settle their liabilities. Under fair value accounting, companies report losses when the fair values of
their assets decrease or liabilities increase. Those losses reduce companies' reported equity and may
also reduce companies' reported net income.
The International Financial Reporting Standards (IFRS) also defines 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". According to these definitions, fair value is an
unrealistic, idealized qualitative value. The current market value is a quantitative value and it does
not fully reflect the value of assets when the markets are not

The Financial Accounting Standards Board
At the beginning of the 21th century, the Financial Accounting Standards Board (FASB) started to
realize the importance of fair value accounting as for a new measurement basis for asset and
liability. The FASB believed the primary objective of financial reporting is to provide relevant and
useful information about the future cash flow to current and prospective investors and creditors
(Whittington, 2008). Since the historical cost accounting usually gives information about past
transaction, not information about the future, to existing shareholders or creditors, FASB thought
financial statements based on historical cost accounting could not be relevant and useful to
prospective investors, which makes them difficult to achieve the main ... Show more content on
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Brain Wesbury, the Chief Economist at First Trust Advisor L.P, also pointed out that the price of
mortgages, corporate bonds, and structured debt have fallen below their fundamental value in
uncertain and illiquid market, and banks had to write down their asset to this distorted market price
in accordance with fair value measurement and record more losses than they had to (Wesbury,
2009). Oher critics make a further argument that this phenomenon has led to the depletion of bank's
regulatory capital and it forced banks to sell off their asset at fire sales prices, which resulted in a
contagious downward spiral as fire–sale price from this distressed bank became relevant marks for
other banks (Plantin, 2008). Although the contagion effects and asset–fire sales might have been
occurred during the financial crisis as critics argue, a careful analysis should be made to find out
whether the fair value accounting actually aggravated the severity of the impact of global financial
crisis. In fact, according to the research conducted by Laux and Leux (2008), there is little evidence
that supports fair–value accounting contributed to the financial crisis. Firstly, most of the financial
assets held by banks in the time of crisis were not marked to market. Under fair value accounting,
financial executives in banks have to classify their securities and loans into (maximum) three asset
categories: Trading securities, Available for Sales (AFS) securities and

Preparation And Presentation Of A Company 's Financial...
1 Introduction
1.1 Background to the study
Preparation and presentation of a company's financial statements is a process that is laden with the
use of estimates. The conceptual framework released by the Financial Accounting Standards Board
indicates that a company prepares financial statements with the intention of assisting investors
assess the company's future cash flow prospects (Financial Accounting Standards Board, 2010).
However, the process used by a company in assessing its cash flows is reliant on the use of estimates
and conjecture. For example, the company has to determine the fair value of its assets on an ongoing
basis if approximate value in the market is to be reflected in the financial statements. These values
are arrived ... Show more content on Helpwriting.net ...
It has also been argued that the increased use of complex financial derivatives contributed to the
confusion regarding the use of fair value accounting, especially among those companies that lacked
deep insight into the operations of the financial world (Laux & Leuz, 2010). Even when there was
adequate knowledge on how these derivatives were to be accounted for, there are arguments that
companies failed to interpret the guidelines as would have been expected.
1.2 Statement of the problem
Generally, there are two approaches in determining the value of a company's assets and liabilities
(Laux & Leux, 2009). One, the company can use the historical cost approach. Under this method,
the purchase cost is used as the basis of determining other factors such as the asset's loss of value
that occurs over time. Therefore, a building acquired five decades ago would be presented in the
financial statements either at the cost at which it was built or the cost of land plus construction.
Depreciation is then deducted from this cost over its lifetime. The historical cost method has some
obvious drawbacks. The historical cost method disregards the occurrence of events that have the
impact of reducing the asset's value (Hitz, 2007). For example, it is possible that the cost of land will
have appreciated immensely over the

Usefulness and Reliability of Information Provided By...
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 on Helpwriting.net ...
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

Mark to Market Accounting
Running head: Mark to Market Accounting
Mark to Market Accounting and Ethical Issues
Ethical Issues ACC–504
April 16, 2012
Abstract
Economic principle's rationale for requiring guidance for financial institutions is to use mark–to–
market accounting or fair value accounting on their financial reports. With the current economic
crisis, questions have been raised as to whether or not fair value accounting is making this crisis
worse. In this paper I review the history of fair value accounting and the ethics behind whether fair
value accounting gives an accurate picture or is it causing a need for higher capital requirements and
unnecessary concern with investors. There is a need for transparency. It is Accounting Standards and
... Show more content on Helpwriting.net ...
This objections implies that a company may be cash poor with valuable assets, this ignores the fact
that a company can use temporary financing to fund current operations with future cash flows. 4.
Valuations may be flawed or imperfect. This is an understandable objection, because some assets are
more easily valued than others. That does not mean though that fair value method should not be
used when the alternative method is just as flawed.
When we look at a benefit of the fair value accounting method we see that a firm will behave
differently, and will take this method into consideration when they are purchasing this asset. The
decisions tend to be less risky if they know that they will have to devalue the asset in the future. Bad
decisions would be something that they would have to identify publicly with future marking to
market. Companies would no longer have a motivation to sell assets for the benefit of recognizing
an accounting gain. Historically a major financial event or crisis prompts reconsideration of
accounting rules governing reported asset valuations. The credit crisis in 2008 generated
reconsideration. In the 1980's the savings and loan crisis prompted accounting rules move away
from historical cost accounting. Had there been a fair value accounting system in place in the 1980's
the savings and loan crisis would have not taken years to realize. The banks had made long term
mortgage loans and borrowed short term. When the interest

Does Fair Value Accounting for Non-Financial Assets
Does Fair Value Accounting for Non–Financial Assets
Pass the Market Test?
Hans B. Christensen and Valeri V. Nikolaev
The University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Abstract: The choice between fair value and historical cost accounting is the subject of longstanding
controversy among accounting academics and regulators. Nevertheless, the market based evidence
on this subject is very limited. We study the choice of fair value versus historical cost accounting for
non–financial assets in a setting where market forces rather than regulators determine the outcome.
In general, we find a very limited use of fair value accounting. However, the observed variation is
consistent with ... Show more content on Helpwriting.net ...
Evidence from the US prior to 1940 is provided in
Fabricant (1936) and ARB (1940). Evidence from Australia is provided in Whittred and Chan
(1992), Brown et al.
(1992), Easton et al. (1993), Cotter and Zimmer (1995), and Barth and Clinch (1996, 1998).
Evidence from the UK is provided in Amir et al. (1993), Barth and Clinch (1996), Aboody et al.
(1999), Muller (1999), and Danbolt and
Rees (2008).
1
managers have stronger incentives to respond to market demands and commit to the accounting
treatment that maximizes the value of the firm (i.e., is more efficient).2
We study valuation practices for arguably the most controversial (non–financial) asset groups:
property, plant and equipment (PPE), investment property, and intangibles. Out of the twenty–nine
European countries that mandated IFRS from 2005, we select the United Kingdom
(UK) and Germany because they have the largest financial markets in Europe and are historically at
opposite ends of the spectrum in terms of using fair value accounting under the local GAAP.
Specifically, for non–financial assets, German GAAP allows only historical cost accounting,
whereas UK GAAP either allows (for PPE) or mandates (for investment property) fair value

accounting. As a result, IFRS expands the available valuation practices in both the UK and
Germany. Indeed, under IFRS, both fair value and historical cost are allowed for PPE and
investment property; and, if an active

Fair Value Accounting
Moving towards Fair Value Accounting
In the past, historical cost measures were mainly used for reporting as they are reliable. However,
historical cost is only relevant upon acquiring the asset and becomes irrelevant as time passes. On
the other hand, fair value–based reporting, which accounts for changes in fair values, can produce
balance sheet figures that provide a better reflection of the company's value. This is also why
accounting bodies are moving towards fair value accounting (FVA).
One of the evident standards is the FASB Standard (SFAS) 157, 'Fair Value Measurements', to
establish clear, consistent guidelines for fair values measurements and disclosures. SFAS No. 133,
'Accounting for Derivative Instruments' and IAS 39 also ... Show more content on Helpwriting.net
...
It is found that managers are more likely to manage earnings because it is hard to verify whether the
estimated fair value figures are well–intentioned or manipulated. Having to rely on their estimates
introduces informational asymmetry. As in the case of Level 3 inputs, since managers have private
information regarding appropriate values to select for model inputs as well as the underlying
economic value of an asset (or liability), the informational asymmetry will create two problems–
adverse selection and moral hazard.
Black et al. found that fair value accounting mitigates incentives for firms to time asset sales to
manage earnings. If fair value measures capture unrealized gains and losses that reflect the future
earnings, firms will have little incentive to increase current income at the expense of future earnings.
However, there are still chances for managers to value assets upwards to increase income so as to
increase their performance–based compensation, abide by the debt covenant restrictions and reduce
political cost as explained by the positive accounting theory. They could simply take a big bath
during rainy days and use the timing of impairments or upward revaluation reversals to boost future
earnings for even better compensation. Hence, accounting standard–setters and securities regulators
need to determine how much latitude to give managers when they estimate fair values and to

Fair Value vs Historic Cost
Review of Business Information Systems – First Quarter 2013
Volume 17, Number 1
Fair Value Accounting vs. Historical Cost Accounting
Paul Jaijairam, Bronx Community College, City University of New York, USA
ABSTRACT This paper reviews fair value accounting method relative to historical cost accounting.
Although both methods are widely used by entities in computing their income and financial
positions, there is controversy over superiority. Historical cost accounting reports assets and
liabilities at the initial price they were exchanged for at the time of the transaction. Conversely, fair
value accounting quotes the prevailing price in the market. Nevertheless, while both methods of
accounting affect financial statements, the ... Show more content on Helpwriting.net ...
Determining the true market value of an asset is sometimes controversial, especially for assets that
do not have active and liquid markets. By definition, the fair value does not need the existence of an
active market. In case of market inexistence, IASB offers guideline that looks at the type of assets or
liabilities. For instance, for property, plant and equipment, depreciated replacement cost is
recommended if market based evidence is unascertainable. For biological assets (animals and
plants), IASB suggest the use of discounted present values of future cash flows (Weetman, 2011).
Later, FASB introduced FASB ASC 820 – Fair Value Measurements and Disclosures (SFAS 157)
(Zyla, 2010). The main aim of this statement is to offer additional guidance and information on
issues that relate to fair value and its measurement. FASB ASC 820 – Fair Value Measurements, in
technical terms, does not bring in any new accounting principle rather it provides financial analysts
and auditors with "additional information on how the FASB intends fair value to be measure in any
instance it is required in financial reporting" (Zyla, 2010). The FAS 159 – the Fair Value
Option(FVO) on Financial Assets and Financial Liabilities – brings in the fair value option that a
company may use in their first and successive measurements of their particular financial liabilities
and

Accounting Rough Waters
This case gives students an opportunity to determine the accounting for impairment of long–lived
assets in accordance with ASC 360–10. Applicable Professional Pronouncements ASC 360–10,
Property, Plant, and Equipment: Overall (ASC 360–10) ASC 360–10 provides guidance on
accounting for property, plant, and equipment, and the related accumulated depreciation on those
assets. This Subtopic also includes guidance on the impairment or disposal of long–lived assets.
ASC 360–10 notes that long–lived tangible assets include land and land improvements, buildings,
machinery and equipment, and furniture and fixtures. ASC 820, Fair Value Measurements and
Disclosures (ASC 820) ASC 820, Fair Value Measurements and Disclosures, ... Show more content
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Further, although the case facts include an estimated annual discount rate of 7 percent, the discount
rate should not be used in Smooth Sailings' impairment analysis since undiscounted cash flows
should be used in the recoverability test. Consideration 3 – Impact of Potential Foreclosure and
Extinguishment of Debt to the Undiscounted Cash Flow Model What impact should the potential
foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability
test? Discussion 2 – Impairment Loss Calculation What impairment loss, if any, should be recorded
as of December 31, 2010? Solution 2 – Impairment Loss Calculation | | Estimated Future Cash
Flows – Undiscounted | Option | Probability of Occurring | 2011 | 2012 | 2013 | 2014 | 2015 | Total |
A | Continue operating the cruise ship in the current area. | 10% | $1.0M | $0.9M | $0.7M | $0.7M |
$0.7M | $4.0M | B | Operate the cruise ship in a new area where there are no pirates. | 20% | $0.6M |
$0.8M | $1.1M | $1.6M | $1.9M | $6.0M | C | For 2011, operate the cruise ship in the current area
despite the increased presence of pirates. On December

Business Combination
Assignment 1: Business Combinations
Cindy Yoon
Professor Robert Neely
ACC 401 – Advanced Accounting
October 24, 2013
Abstract
In this paper, I will provide an explanation for the business combination method I selected in
expanding the corporation by acquiring another firm, the reason for selecting that business
combination method, and how the purchase will grow the business. I will also analyze the
accounting requirements for the business combination method I selected and how I determined
goodwill was impaired and the financial impact of such impaired goodwill.
The business combination method I selected is the acquisition method. Business combinations have
implemented the newly created accounting treatment called the ... Show more content on
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A requirement of this method is that the acquirer must be identified in every business consolidation
clearly. Below are several key components changes in the acquisition method: Measurement of the
subsidiary's net identifiable assets is based on the fair value of the subsidiary as a whole, rather than
based on the cost of purchase at the acquisition date. The acquisition date is the closing date that the
purchaser obtains control of the acquired business. For example, the parent will still have full
control of the entire subsidiary even if they purchased less than 100% of the net identifiable assets.
The parent incorporates the full fair value of the subsidiary in the consolidated financial statements
and then allocates to the non–controlling interest. The key difference between the purchase method
and the acquisition method is that in the acquisition method, all of the Fair Market Value increment
and all of the goodwill is recognized, including the portion attributable to the non–controlling
interest. The reason behind this idea is that a business in control of another entity should be able to
fully control

Fair Value Measurement
FAIR VALUE MEASUREMENT: IMPLEMENTATION ISSUES AND CHALLENGES (PART 1)
(by Tuam Kwok Choon and Ng Kean Kok)
INTRODUCTION Since the promulgation of fair value accounting by the International Accounting
Standards Board (IASB), the subject matter has been hotly debated by industry players and
professionals of the accounting fraternity the world over. Many problems and pitfalls have been
highlighted on the "mark–to–market" premise. For example, David Gwilliam and Richard H.G.
Jackson (2008) noted that Enron "was able to 'monetize' physical assets so as to bring them within
the remit of mark to market accounting", suggesting misuse of fair value measurement. Fair value is
said to be superior to other forms of measurement because it is easily ... Show more content on
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With the emphasis on mark–to–market approach, fair value hence is definitely very relevant in
today's business environment. Historical cost accounting fails in terms of not only in relation to
reporting current values, but also in terms of projecting future values. Fair value hence allows for
better investment decision to be made, based on latest fair values reported.
INDUSTRY FEEDBACK AND RESPONSE Critics of the US banking institutions have strongly
criticised and blamed fair value accounting for aggravating the credit crisis, forcing the institutions
to heavily slash the value of their mortgage assets, which resulted in weakening the regulatory
capital ratios. The need to mark to market the financial instruments forced many financial
institutions to incur large writedowns on the balance sheets. Without the regulatory cash cushion,
inter–bank and customer lending became severly hampered, thus creating a stagnant credit market.
It is easy to make accounting rules the scapegoat when it comes to shifting blames. The reality is
that had financial institutions adopted fair value accounting and its disclosure requirements early,
they would have seen the writing on the wall.
Still, it is hard to ignore the fact that the recent financial crisis has exposed some shortcomings of
fair value accounting. Reporting fair value in illiquid markets creates earnings volatility and

Fair-Value Accounting and the Financial Crisis Essay
Market crashes are nearly as old as the invention of money itself. But, as Gillian Tett underlines in
Fool's Gold, "the latest financial crisis stands out due to its sheer size". Economists estimate total
losses could sum up to $2000 to $4000 billion, a number surprisingly not dissimilar to the British
Gross Domestic Product. In its post–mortem, the self–inflicted disaster has commonly brought to
light the question: "Did bankers, regulators and rating agencies fail to see the flaws, or did they fail
to care?" Importantly, it has also created a hunt for scapegoats and quick fixes.
Many Republicans and industry lobbyists have insisted that the financial meltdown would not have
been nearly as bad if not for the deadly Fair–Value Accounting ... Show more content on
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However, during the financial crisis, the application of the accounting standards was very different,
and did not demand pure FVA.
Firstly, the write–downs were not as apparent as they seemed. Due to the mixed attribute model,
firms were allowed to choose the measurement attribute they desired for a position through how
they classified the position. During the crisis, banks did indeed utilize these safeguards and
discretion built into FVA on their mortgage–based securities. This resulted in the re–classification of
many fair–value assets into other categories in which weaker impairment standards were applied.
Hence, most bank financial assets were valued at amortized historic costs on their balance sheets.
With only trading–type operations reported under fair value principles . This implies that FVA
standards would have made little difference in a bank's balance sheets and regulatory capital ratios.
For the same reason, written–down values were also barely understatements. If anything, they were
in fact overstatements as banks had the individual discretion in determining fair value. Lastly, FVA
standards also allowed the use of valuation models in the calculation of fair values when markets
become inactive, and stated that market prices from forced sales should not be used. Hence FVA
should have mitigated contagion effects, and actually protected institutions against negative spill–
overs from distressed banks respectively. In a

Fasb Accounting Standards Codification
FASB Accounting Standards Codification:
410 Asset Retirement and Environmental Obligations
Abstract
The purpose of this research paper is to summarize research on codification topic 410 based on the
information found in different academic databases. The first part of the paper will focus on the
FASB Codification database. The second part of the paper will compare and contrast three other
databases on the same codification 410 within the RIA Checkpoint databases: AICPA: Auditing and
Accounting Guides, SOX Reporter, and GAAP Practice Manual. A summary of benefits and issues
with the searches of each database will also be discussed.
Codification 410 is divided into two subtopics, 410–20 and 410–30. Code 410 ... Show more content
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When I clicked on the pre–codification standards to find what FASB Pronouncements were listed
for my topic, 410, I found the entire is of FASB Pronouncements. I couldn't search for the applicable
standard through a look–up; I had to scroll through the list to find a standard that pertained to my
search. What I found was:
Statement No. 157 (Superseded) Fair Value Measurements (Issue Date 09/06)
[As Amended] [As Issued] [Summary] [Status](FASB, Other Sources, Pre Codifications Standards)
Table 1
FASB Accounting Standards Codification
Table of Contents
Collapse | Expand 410 Asset Retirement and Environmental Obligations 10 Overall 00 Status
General 05 Overview and Background General 20 Glossary 20 Asset Retirement Obligations 00
Status General 05 Overview and Background General 15 Scope and Scope Exceptions General >
Entities > Transactions 20 Glossary 25 Recognition General > Background for Recognition > Fair
Value Is Reasonably Estimated > Obligations with Uncertainty in Timing or

HP's Acquisition of Autonomy
Goodwill Impairment and Fair Value Measurement: Hewlett–Packard's Acquisition of Autonomy
Abstract
In today's business environment, mergers and acquisitions are becoming increasingly common.
Mergers and acquisitions create many accounting challenges including issues of fair value
measurement and the associated topic of goodwill impairment. The fair value measurement of an
acquired company usually entails using a Level 2 fair value estimate, or using a market or income
approach, both level three fair value estimates. Valuing an entity using the income approach can be a
very challenging due to the significant unobservable inputs that must be used to arrive at fair value.
Such unobservable inputs include items such as growth rates and ... Show more content on
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(Add sentence about attributing a monetary value to goodwill.) In subsequent years, any amount of
goodwill determined from this fair value calculation needs to be tested for impairment.
In order to determine if goodwill impairment is required the Accounting Standards Codification
(ASC) describes a two–step test for impairment (ASC 350–20–35). The first step is to compare the
carrying value of the entity (Autonomy) and compare it to its calculated fair value. If the fair value
is less than the carrying value (including goodwill) then it is necessary to move onto step two. Step
two states that if the implied fair value of goodwill is greater than the carrying value of goodwill,
then there must be a subsequent impairment to make up the difference. That means that if the
reporting entity qualifies after both tests, there must be a goodwill impairment loss to set the
carrying value equal to the implied fair value. HP describes how they test for goodwill impairment
in their 2012 10–K,
For goodwill, HP performs a two–step impairment test. In the first step, HP compares the fair value
of each reporting unit to its carrying value...If the fair value of the reporting unit exceeds the
carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing
is performed...If the carrying value of the net assets assigned to the reporting unit exceeds the fair
value of the reporting unit, then HP

Ifrs vs U.S Gaap
Differences between IFRS and U.S GAAP Duoyi Zhang
(1)
| Issue: |Measurement basis of agricultural crops, livestock, orchards, |
| |forests. |
|1.IFRS IAS 41, Para 10–33 |Fair value with value changes recognized in profit or loss. |
|2.U.S GAAP |Historical cost is generally used. However, fair value less |
|ASC 905–330–35–3 |costs to sell is used for harvested crops and livestock held |
| ... Show more content on Helpwriting.net ...
Several different |
| |sources of literature provide guidance on when a security is |
| |considered other–than–temporarily impaired. |
| |US– the investor shall provide meaningful disclosure about |
|3. Underlying theoretical difference |individually significant unrealized losses. |
| |IFRS–the investor only provides evidences to prove losses is |
| |happened, no matter evidence is meaningful or not. |
| |This is the biggest objection US companies have to IFRS. |
|4. Effect of convergence on US financial statements, ratios, |Because US governments have more
strict requirements than any |
|and decisions |other Europe countries, For example, in 2010, A US company had|
|

Historical Development Of Fair Value Measurement
Fair value measurement is one of the models which provide guidance on how entities should
determine the fair value of financial instruments for reporting purposes. This paper discusses the
Financial Accounting Standards Board (FASB) Exposure Draft issued on December 3, 2015 which
proposed amendments to Fair Value Measurement (Topic 820): Disclosure Framework – Changes to
the Disclosure Requirements. The paper analyzes some of the key points of the exposure draft,
among other things, the history and development the concept of fair value management, the
necessity of the amendments to the topic, the provisions and conceptual framework of the fair value
measurement. The paper also compares and contrasts the FASB Topic 820 formerly known as to the
International Accounting Standards (ISA) No. 13 of the International Financial Reporting (IFRS).
Finally, the paper concludes on the response to the exposure draft.
Keywords: Fair value measurement, FASB Topic 820, IAS No. 13
Historical development of Fair Value Measurement 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

Fair Value
Case analysis: Classification of instruments in fair value hierarchy
Instrumental 1
In the case, there was a significant decrease in the volume and activity for the instrument because of
(1) significant widening of the bid–ask spreads in the markets and the widening continued
throughout Q4 2012 (2) a significant decrease in the volume of trades comparing with historical
level in Q4 (3) no recent transactions. According to 820–10–35–54–c, it was reasonable to
determine that market is not active. Because the adjustments were based on management's
assumption, FFC didn't used level 1 inputs in the income approach valuation technique (present
value technique). In addition, significant adjustment inputs includes credit adjustment (level 3 ...
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Then, FFC changed its valuation technique from market approach to income approach (discounted
cash flow model). Most relevant inputs in this model were level 3 inputs, because they were
estimations and assumptions that were not market based. In other words, such inputs were not
observable. So, FFC should classify the ARSs into level 3 of the fair value hierarchy in the fourth
quarter.
Instrument 4
There were no quoted prices available for X' stock, so the measurement did not belong to level 1 of
the Fair Value Hierarchy. In addition, because Most of X's competitors are either privately held or
subsidiaries of larger publicly traded clothing retailers and the shares of the two similar two
companies are thinly traded in an observable market, the market is inactive. FFC also needed some
significant assumptions to forecast its cash flows. These assumptions were level 3 inputs in
accordance with ASC 820–10–55–e. In the case, FFC should use the multiple techniques and weight
more market approach than income approach, because (1) general valuation principle is maximizing
the use of relevant observable inputs and minimizing the use of unobservable inputs (2) sufficient
data could be used to support both the approaches (3) market participants used multiple techniques
to invest similar stock. So, under ASC 820–10–35–37A, FFC should category the investment into
level 3 of the fair value hierarchy, in which the lowest level significant inputs are.

Fair Value
Exhibit 1 1. (Exhibit 1: Total Product) Between points A and B the marginal product of labor is: A)
increasing. B) zero. C) falling. D) infinite. Ans: C Exhibit 2: Total Product and Marginal Product |
Labor per Day | Total Products (units per period) | 0 | 0.0 | 1 | 1.0 | 2 | 3.0 | 3 | 7.0 | 4 | 9.0 | 5 | 10.0 | 6
| 10.7 | 7 | 11.0 | 8 | 10.5 | 2. (Exhibit 2: Total Product and Marginal Product) The marginal product
of the second worker is: A) 1.0. B) 1.5. C) 2.0. D) 3.0. Ans: C 3. Marginal product: A) can never
increase. B) can only be falling. C) can be less than zero. D) never equals average product. Ans: C
Exhibit 3 4. (Exhibit 3: Short–Run ... Show more content on Helpwriting.net ...
| (Exhibit 9: Total Cost for a Perfectly Competitive Firm) If the market price is $4.50, the profit–
maximizing quantity of output is _______ units. | A) | 5 | B) | 7 | C) | 8 | D) | 9 | Ans: | C | | | 17. |
(Exhibit 9: Total Cost for a Perfectly Competitive Firm) If the market price is $3.50, the profit–
maximizing quantity of output is _______ units. | A) | 5 | B) | 7 | C) | 8 | D) | 9 | Ans: | B | | | 18. |
(Exhibit 9: Total Cost for a Perfectly Competitive Firm) If the market price is $5.50, the profit–
maximizing quantity of output is _______ units. | A) | 5 | B) | 7 | C) | 8 | D) | 9 | Ans: | D | Exhibit 10 |
| 19. | (Exhibit 10: Profit Maximizing) The exhibit shows cost curves for a firm operating in a
perfectly competitive market. Curve M is the _______ curve. | A) | ATC | B) | MR | C) | MC | D) |
AVC | Ans: | C | | | 20. | (Exhibit 10: Profit Maximizing) The exhibit shows cost curves for a firm
operating in a perfectly competitive market. Curve N is the _______ curve. | A) | ATC | B) | MR | C)
| MC | D) | AVC | Ans: | A | | | 21. | (Exhibit 10: Profit Maximizing) The exhibit shows cost curves for
a firm operating in a perfectly competitive market. Curve O is the _______ curve. | A) | ATC | B) |
MR | C) | MC | D) | AVC | Ans: | D | | | 22. | (Exhibit10: Profit Maximizing) The exhibit shows cost
curves for a

The Impact Of Fair Value On Financial Reporting Essay
The most controversial topic of today's time in the world of accounting is fair value. However, one
common point of confusion is the scale of businesses affected by fair value, and when fair value
came onto the scene. According to Robert Herz and Linda MacDonald "...the use of fair value in
financial reporting is not new. In fact, it has been in place for decades, principally for financial
assets. But even then, fair value is not required for all assets." (2008) The idea of using fair value
measurements goes back at least to the 1930's when Kenneth MacNeal wrote Truth in Accounting. It
wasn't until 1993, however, until the FASB released SFAS 115. SFAS 115 addresses the accounting
and reporting for investments in equity securities that have readily determinable fair values and for
all investments in debt securities. (FASB 1993) In 2006 the FASB released SFAS 157, which
established a framework for measuring fair value. SFAS 157 also requires significantly more
disclosures about fair value estimates than ever before. (FASB 2006) Finally the FASB issues SFAS
159, which permits entities to choose to measure many financial instruments and certain other items
at fair value. (FASB 2007) These statements set the stage for the discussion of the advantages and
disadvantages of fair value. Also discussed, will be the problems with implementation of a full fair
value measurement system. That discussion will be followed by a brief summary.
II. Methodology
The foundation of this paper

International Accounting Standards Codification System
In 2006, the FASB issued Statement No. 157, "Fair Value Measurements" (SFAS 157), and in 2007
issued Statement No. 159. The objective of SFAS 157 is to increase the consistency, comparability
and transparency of fair value measurements used in financial reporting by establishing "a single
authoritative definition of fair value, a framework for measuring fair value, and fair value financial
statement disclosure requirements"(http://www.iasplus.com/en/binary/usa/0808fairvalueupdate.pdf).
In 2011, the FASB and the IASB substantially converged the guidance for measuring and disclosing
fair value under US GAAP and IFRS through the issuance of two standards: Topic 820 and IFRS 13.
These standards are the current authoritative guidance on fair ... Show more content on
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As discussed above, the publishing of either the standards under the GAAP (SFAS 157 and SFAS
159) or the new standards from the convergence project (Topic 820 and IFRS 13) have the same
intention to strengthen the consistency, comparability and transparency of fair value accounting. No
matter fair value accounting is under GAAP or under IFRS, they have in common to reduce
complexity of accounting, enhance understanding and reduce motivation to structure transactions so
as to achieve certain accounting treatments for assets and obligations. The fair value standards
emphasize that fair value is a market–based measurement and hierarchy of inputs is used in
determining fair value estimates. The hierarchy gives the highest priority to observable market
inputs and the lowest priority to unobservable market inputs. Especially Level 1 inputs transparently
reflect fair value. At this point, fair value makes a company 's balance sheet more transparent and
improves the investors' insight. Investors may prefer the fair value methodology because it 's easier
for them to determine what a company is really worth when its assets are valued at prevailing
market prices. Moreover, basing on the available and comparable price data, companies can

Historical Development Of Financial Accounting Theory
To understand the fair value accounting concept, an understanding of the foundation of accounting is
where it is today is needed. This information provides a guideline of how the first conceptual ideas
of accounting first began and changed overtime to accommodate the ever increasing changes with
investment options along with lobbying efforts of individuals. The FASB's Statement of Financial
Accounting Concepts (SFAC) No. 8 indicates that the primary purpose of financial reporting is to
provide financial information about the reporting entity that is useful to present and potential equity
investors, lenders, and other creditors in making decisions about providing resources to the entity
(Schroeder, Clark, & Cathey, 2014 p. 184). With ... Show more content on Helpwriting.net ...
Philadelphia opened the first stock market in 1790 which was later followed by the New York Stock
Exchange in 1792 with Bank of New York being the first list stock. With incomes increasing,
individuals had disposal income to start investing with. As America went west, railroad stocks
became hot commodities which caused investors to invest heavily in. By the 1900's accounting
organizations started to increase and strive for the recognition of professionalism. During this time,
University's started to offer classes on accounting for individuals looking for a business career in
accounting. The accounting profession's turning point came with the stock market crashed in 1929.
Following this event the Securities and Exchange commission was created to administer various
securities acts and to prescribe accounting principles and reporting practices (Schroeder, et. al, 2014,
p. 6). Subsequently, the American Institute of Certified Public Accountants (AICPA) was given the
opportunity to create accounting standards for companies to follow. But dissidence cropped up as
disagreements arose with how members would be selected and the timeframe it took to bring the
potential regulations to the public. By 1973, the Financial Accounting Standards Board (FASB) was
designated as the organization within the private sector for establishing standards of financial
accounting that

Ifrs Vs Gaap : Statement Of Cash
IFRS vs GAAP Statement of cash flows 'Cash and cash equivalents' include certain short–term
investments and, in some cases, bank overdrafts. Like IFRS, 'cash and cash equivalents' include
certain shortterm investments, although not necessarily the same short–term investments as under
IFRS. Unlike IFRS, bank overdrafts are considered a form of short–term financing, with changes
therein classified as financing activities. The statement of cash flows presents cash flows during the
period, classified by operating, investing and financing activities. Like IFRS, the statement of cash
flows presents cash flows during the period, classified by operating, investing and financing
activities. The separate components of a single transaction are classified as operating, investing or
financing. Unlike IFRS, cash receipts and payments with attributes of more than one class of cash
flows are classified based on the predominant source of the cash flows unless the underlying
transaction is accounted for as having different components. Cash flows from operating activities
may be presented using either the direct method or the indirect method. If the direct method is used,
then an entity presents a reconciliation of profit or loss to net cash flows from operating activities;
however, in our experience practice varies regarding the measure of profit or loss used. Like IFRS,
cash flows from operating activities may be presented using either the direct method or the indirect
method. Like IFRS, if

Measuring Fair Value Accounting Standards
Fair Value accounting is a measurement application to value assets and liabilities based on current
transactions among buyers and sellers in the market. In other words, the price market participants
pay or receive in an orderly transaction at a certain date. There are different techniques for
measuring fair values depending on asset and market activity. It includes market approach, cost
approach, and income approach. Financial Accounting standards (FAS 157) defines 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" (FASB, 2006). Different levels of
inputs are also utilized in measuring values of assets and ... Show more content on Helpwriting.net
...
In contrast, Historical Cost accounting is defined by recording assets or liabilities on its acquired
cost. The nominal value that a company paid for an asset or recorded a liability. This measurement is
based on a cost principal that states to record assets/liabilities at the acquisition value. In this
approach, assets or liabilities are adjusted to its net realizable value in a systematic manner. For
example, depreciation of fixed assets, amortization of intangible assets, and depletion of natural
resources. These rational and systematics approaches to adjust assets' value to bring these
instruments to its carrying value, deviating from the recorded historical cost. HCA (Historical Cost
Accounting) and FVA (Fair Value Accounting) measurements techniques are accepted by both
accounting standard setters FASB (Financial Accounting Standard Board) and IASB (International
Accounting Standard board). Under both measurement approaches, there could be significant
differences in reporting, measuring, adjusting, and disclosing values of assets and liabilities. GAAP
(Generally Accepted Accounting Principles) and IFRS (Internal financial Reporting Standards)
mostly apply fair value concepts to financial assets and liabilities up to certain extent. On the other
hand, HCA is usually used for fixed assets e.g. property, plant and equipment. FVA measurements
are not fixed and fluctuate due to market volatility, but HCA values are mostly fixed and change
under certain

Fair Value Accounting And Audit
Fair Value Accounting and Audit
Ivie Uduebho
4/30/2015
Introduction
In today's businesses, there has been an increase in the demand for financial reporting and also, the
need to have reliable measurements of fair value and its disclosures. The need for reliable
information has caused continuous change to accounting policies which has posed a challenge not
only to management of companies, but also to auditors. The frequent changes in accounting
principles pose a challenge for managers in measuring accounting estimates accurately and are an
exceedingly difficult task. Fair value accounting is a financial reporting approach in which
companies are required to measure and report on an ongoing basis certain assets and liabilities at
estimates of the prices they would receive if they were to sell the assets or would pay if they were to
settle their liabilities. Under fair value accounting, companies report losses when the fair values of
their assets decrease or liabilities increase. Those losses reduce companies' reported equity and may
also reduce companies' reported net income.
The International Financial Reporting Standards (IFRS) also defines 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". According to these definitions, fair value is an
unrealistic, idealized qualitative value. The current market value

"The principle of historical cost is still used in...
Synopsis.
Historical Cost Accounting is a traditional valuation method as it reflects only on the past cost of the
asset, however in the contemporary business environment companies must remain flexible and
transparent. This belief has lead to the creation of several other valuation methods, due to word
constraints I have focused primarily on Fair Value Accounting as an alternative to Historical Cost
Accounting. Although Fair value accounting is a theoretically superior valuation methodology, there
are several severe problems in its current application, due to lax regulations and ineffective methods
of determining current values of non–current assets. These problems within Fair Value Accounting
have ensured that most companies ... Show more content on Helpwriting.net ...
Appropriate valuation of assets without verifiable data can be difficult and subjective. This is
especially the case when there is no market for the asset and valuation must be wholly speculative,
often leading to unintentional over–valuations of 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.
Comparison between Historical Cost Accounting and Fair Value Accounting.
Quite clearly historical cost accounting has several limitations and flaws that can have notable
influences on businesses and are often criticised. Still historical costs are the standard form of
accounting due to its unique features and conventions that make it better than all currently available
alternatives.
If markets were liquid and transparent for all assets and liabilities, fair value accounting clearly
would be reliable information useful in the decision making process. However, because many assets
and liabilities do not have an active market, the inputs and methods for estimating their fair value
are more subjective and, therefore, the valuations less reliable. Management bias, whether
intentional or unintentional,

Accounting Analysis On Accounting Standards
Accounting regulation is a complete set of theories that identified the economic, social and political
factors that are related with the development of accounting principles and standards and to serve the
best interest of societies. In 1930 and 1972 GAAP (Generally Accepted Accounting Principles) and
SSAP2 were introduced to reduce the accounting scandal and control and regulate the accounting.
Later in the year, FASB (Federal Accounting Standard Board) introduced conceptual framework to
provide better understanding from rules, theories and principles in accounting. However, regulation
in accounting is never neutral and different firm chooses different accounting rules and systems
where it suits particular people for particular result that ... Show more content on Helpwriting.net ...
Furthermore, this statement stat there is no market value in accounting where everything is based on
management's opinion. Moreover, using the related articles, how managers judge and manipulate the
financial statement will be elaborated in the following. This paper will critically evaluate how
accountant creates the truth and how accounting present and represent the situation in limited way
and manipulation will be supported by using statement and examples. Accounting represents reality
and act for a construction of social reality. It can be said that the economic reality is subjective
(Hines1991. P.316). Morgan also supports that accountants see themselves as involved in an
objective representing reality but in fact they construct the reality. For Example, Morgan (1988,
P.477) stat the artist painting of picture which represent the reality but in limited aspect of situation,
Hines also clearly sees that accounting practices involves bias and errors that does not show exact
amount and exact valuation of transaction. The part of financial accounting is to provide unbiased,
impartial and stable information to the public. In addition, Hine suggests that it is clear that
accounting rather than simply constructing the reality can also have real effect on the economy. The
result of change in accounting rules and standards

Table Of Contents. Objective Of Financial Reporting2. Single
Table of Contents
Objective of Financial Reporting 2
Single Measurement Approach 2
Mixed Measurement Approach 2
Breakdown of Woolsworth Measurement Approach 3
Our Recommendation 4
References: 6
Objective of Financial Reporting
Since the core objective of financial reporting is to provide useful information to report users for
making and reviewing resource allocation decisions (Deegan, 2012), it is of paramount importance
that these statements are faithfully represented and relevant. The absence of either characteristic will
cripple the decision making process.
Single Measurement Approach
Some companies attempt to meet those characteristics by relying on a single measurement approach.
This is because it provides them with higher levels ... Show more content on Helpwriting.net ...
However, Market values may be exposed to economic fluctuations which may cause
assets/liabilities to be under or over valued.
Mixed Measurement Approach
As such, many companies, like Woolsworths, prefer to use a mixed measurement approach as there
is flexibility to use more than a single measurement approach for different situations. Considering
the different informational needs of report users, certain measurements may not be suitable to
present information in a useful way (Dvořáková, 2009). For example, when there is a need for
Woolsworth to predict the cash flows of an operation in a going concern business, cost accounting or
historical costs measurement would be most appropriate, since cash flows should not deviate that
much from previous years. However, when attempting to value prospective investments, fair value
measurement would be more appropriate because it is based on current prices, and is therefore more
accurate, which will help us make an informed decision on the future prospects of the investment.
Having said that, a mixed measurement approach presents its own set of problems. Firstly, it can
lead to an 'additivity problem'– where there is an aggregation of data that is measured by different
approaches. Also, it undermines the comparability of financial

Fair Value Accounting Is Worth Being Used

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