Fair Value Measurement and Fundamental Characteristics of Accounting Information in Australian Business Practices

1. Comment of the aforementioned statement.
In reference to IFRS, IFRS 13 requires the measurement and disclosure of assets and liabilities at
their fair value. Fair value refers to current market price of an asset or the amount of money to be
transferred from an organization for the settlement of debt at a hand length transaction.
Therefore, the company needs to revalue its asset and recognize the revaluation value by taking
the market price of the asset less the net book value as per the advice from its accountant.
AASB in seeking to increase the consistency and compatibility in fair value measurement related
its disclosure with the fair value hierarchy. These input levels include;
The level 1 Inputs- This refer to the quoted prices in the current and active market for assets
and liabilities which are identical and that an entity can be able to access in helping the
measurement and comparability at the date of measurement. The price provides unbiased
evidence of the fair value of an as asset or liability and is used in measuring the current market
price of identical assets and liabilities with much adjustment and with limited exceptions.
For instance if a given entity holds assets or a liabilities and they are traded in the active market,
the fair value fair of the asset or liability is measured within level 1 as the commodity of quoted
price of that given asset or liability, even if the market supply is not enough to absorb the
quantity demanded and to sell a single position might affect the quoted price.
The level 2 inputs-This refer to the other inputs other than quoted market prices included in
level 1 and which are observable for particular assets and liabilities directly or indirectly.
Inputs of level 2 include; prices quoted for similar assets or liabilities in the active market,
quoted prices for similar or identical assets or liabilities in an inactive market, inputs other than
quoted prices that are observable for instance interests implied volatilities and credit cards,
(Australian Accounting Standards Board (AASB), 2010)
The Level 3 inputs- Consist of inputs for assets and liabilities that are not observable and which
may include the company's own research and taking into consideration all market participation
assumptions and factors that might be reasonably available.

Fair Value Measurement
The main aim of fair value measurement is to measure and disclose the price at which an asset
can be sold at an orderly transactions or the price to pay in order to transfer the liability between
market participants at the measurement date, holding all things conditions constant.
In order to measure the fair value of an asset or liability, the following are the requirements to an
organization.
Determination of the particular asset or liability whose fair value is to be measured considering
that with unit of account
For instance, Goodwill and other non tangible assets, proper valuation must be done, this is
appropriate for the measurement of fair value.
Choose the advantageous or rather the principal market for the given asset or liability.
Finally determine the most appropriate method for measuring fair value of asset and liability
putting into consideration the available data.
Techniques used measure the fair value of assets and liabilities.
Market Approach-uses relevant information’s including prices provided the market of similar or
identical assets and liabilities or a group of assets and liabilities.
Cost approach- reflects the amount required to replace the current service generated by an asset
that is the current replacement cost.
Income approach-converts future amount (cash flows or income and expense) to a single current
discounted figure reflecting current market expectations about those future amounts, (AASB,
C.A.S., 2014)
The objective of disclosure and measurement of the fair value of an asset or liability

The assets and liabilities are measured at fair value on a recurring or non-recurring basis in the
statement of financial position after initial recognition; the valuation is done and presented in the
financial statements.
The fair value measurements using significant unobservable inputs as per level 3, affects the
profit or loss and other financial information of a company, (Kober, Lee and Ng, 2010.)
Therefore the disclosure and measurement of fair value aim at providing the correct
information about the company's financial position and performance.
2. Fundamental characteristics of accounting information in Australian Business practices
Relevance- Information provided should be relevant and not irrelevant. This may involve
reporting particularly relevant information or information whose omission or misstatement could
influence negatively the economic decisions of users. For accounting information to be able to
assist the financial user to make a financial decision for instance allocation of resources, it must
assist them to make predictions about future and form expectations about the future based on
previous experience
Reliability- For information to be reliable it should be free from material errors as it may
mislead the user. There must be a faithful representation of transactions and other events.
Information should reflect the underlying substance of events, and prudently represent estimates
and uncertainties through proper disclosure.
Accounting information should put into consideration the current state of economy and type of
industry under which it is operating.
Prudently representation estimates refer to being careful when handling uncertainties in the
process of recognition and measurement in that you should not underestimate liabilities nor
overestimate assets.
Comparability- The information must be comparable to the financial statements presented for
other accounting periods so that users can identify trends in the performance and financial
position of the reporting entity. That means the accounting policies used should be consistent to
ensure uniformity in financial reporting for proper comparability. Also, the accounting policies