Fair Value
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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 value accounting due to the high relevance information will become increasingly important in the new century and the future accounting measurement. With the financial crisis, more and more professionals and bankers believed that the fair value accounting was the principal reason that the U.S. financial system melted down in 2008. By contrast, some investor groups and accounting interests emphasize that the fair value accounting gave investors an early warning of the looming financial crisis and continues to give them useful information.
This report is a brief analysis about fair value accounting. It is divided into three parts. In the part A, this report briefly discussed the role of fair value accounting in providing useful information for economic decision making. In the part B, this report has critically discussed the limitation of fair value accounting. For the last part, part C, two Australian companies from different industries been given as examples to indentify and discuss the extent to which fair value accounting is being applied.
Part A The role of fair value accounting relates to provide useful information for economic decision making. FAS 157 defines “fair value as the price received to sell an asset or the price
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 value accounting due to the high relevance information will become increasingly important in the new century and the future accounting measurement. With the financial crisis, more and more professionals and bankers believed that the fair value accounting was the principal reason that the U.S. financial system melted down in 2008. By contrast, some investor groups and accounting interests emphasize that the fair value accounting gave investors an early warning of the looming financial crisis and continues to give them useful information.
This report is a brief analysis about fair value accounting. It is divided into three parts. In the part A, this report briefly discussed the role of fair value accounting in providing useful information for economic decision making. In the part B, this report has critically discussed the limitation of fair value accounting. For the last part, part C, two Australian companies from different industries been given as examples to indentify and discuss the extent to which fair value accounting is being applied.
Part A The role of fair value accounting relates to provide useful information for economic decision making. FAS 157 defines “fair value as the price received to sell an asset or the price
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