Fair Value Measurement - 2356 Words

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†¦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 m ade, 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 andShow MoreRelatedHistorical Development Of Fair Value Measurement1400 Words   |  6 PagesFair 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 andRead MoreAccurate Accounting Measurement: Fair Value Measurement Essay1315 Words   |  6 PagesFair value measurement: The Standard defines fair value as â€Å"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†. This is sometimes referred to as an â€Å"exit price†.(AASB13) IFRS 13 IFRS 13, Fair Value Measurement, was adopted by the International Accounting Standard Board on May 12, 2011. IFRS 13 provides guidance for how to perform fair value measurement under IFRS and takes effect on JanuaryRead MoreContemporary Issues Of Accounting Theory Fair Value Measurement Essay1666 Words   |  7 PagesASSIGNMENT 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 earlyRead MoreNew Zealand Financial Accounting. Essay1522 Words   |  7 Pagesframework for measuring fair value in IFRS. This is based on a number of key concepts including un it 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 financialRead MoreMicrosoft Corporation: Assignment Essay1100 Words   |  5 PagesIntroduction: The purpose of this assignment is for you to learn more about the fair value disclosure requirements included in the FASB Accounting Standards Codification (the Codification). You will do so by examining fair value disclosures included in the following filings: * Form 10-Q for Microsoft Corporation (MSFT) for its quarter ended March 31, 2012, filed with the SEC on April 19, 2012 and * Form 10-Q for The Goldman Sachs Group, Inc. (GS) for its quarter ended June 30, 2012, filedRead MoreUsefulness and Reliability of Information Provided By Corporations1474 Words   |  6 PagesTherefore, 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 today of an asset or liability if it were sold or disposed in a transaction between third parties that areRead MoreInternational Accounting Standards Codification System1414 Words   |  6 PagesIn 2006, the FASB issued Statement No. 157, â€Å"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 â€Å"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,Read MoreThe Impact Of Fair Value On Financial Reporting Essay1529 Words   |  7 Pagestime 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 â€Å"...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 whenRead MorePreparation of a Financial Statement844 Words   |  3 Pagesfor asset measurement within the financial reporting framework. Asset measurement has been in existence and practiced for years immemorial, for Vehmanen(2013, p.132) measurements involve assigning numeral to objects or events in accordance to a set of rules or standards. The gradual sophistication in f inancial reporting and evolution of global investment markets together with the increasing knowledgeable investors and financial reporting users have gingered interest in asset measurement methods.Read MoreBusiness Combination1719 Words   |  7 Pagesacquisition method include changes to fair value measurement, goodwill recognition, and non-controlling interests.       In acquisition method, the parent company reports the net assets of the acquired company at the price that it was paid for.    This price includes any cash payment, the fair market value of any shares issued, and the present value of any promises to pay cash in the future.    A key point of the purchase method is that the parent consolidates the book value of all the subsidiary’s assets