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Assignment - Financial Accounting

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Added on  2020-03-16

Assignment - Financial Accounting

   Added on 2020-03-16

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Financial Accounting
Assignment - Financial Accounting_1
AbstractThe present report has illustrated the significance of fair value measurementtechniques for supporting the decision-making process of end-users. The major limitation tothe use of fair value technique as inferred from the report is that it results in inducingvolatility in the financial statements thus manipulating the financial reports.
Assignment - Financial Accounting_2
IntroductionThe concept of fair value has been recognized as highly important by the IASB(International Accounting Standards Board) for improving the quality of financial reporting.The use of fair value accounting ensures in providing accurate value of assets and liabilitiesof a company based on their current market valuation. However, the use of historical costaccounting only records the initial value of assets and liabilities at the time of their purchasewithout any adjustment made in relation to their market value (Dignah et al., 2016). In thiscontext, the present report discussed the concept of fair value introduced by AASB 13 inAustralian accounting standards by critically examining its limitations in providing decision-useful information to the end-users of the financial statements.Concept and Limitations of Fair Value AccountingThe IASB has directed the business entities around the world to incorporate the use ofIFRS 13 standard regarding the fair value measurement. In this context, the AASB(Australian Accounting Standard Board) has also adopted the standard of fair valuemeasurement through development and introduction of AASB 13 accounting standard. As perthe AASB 13 standard, the fair value can be stated as a market-based measurement approachfor identifying and measuring the values of assets and liabilities. The fair price of an asset orliability indicates the market price at which orderly transaction relating to selling of an assetor transferring a liability occurs on the date of measurement between the market participants.The approach to fair value measurement assumes that the transaction has taken place in aprincipal market or in the most advantageous market if the principal market is not present(AASB 13, 2015). The use of fair value accounting in the development of financial reports is regarded tobe a topic of debate among the accounting professionals. This is because the measurementtechnique is associated with some drawbacks that limit its usefulness in disclosing thereliable and accurate information to the end-users. For example, there are some businessorganizations that do not realize any gains from the use of fair value accounting approach dueto large fluctuations in the value of their assets. Thus, the presence of high volatility in theasset value makes it difficult for the companies in accurate prediction of their market pricerelated to long-term financial picture therefore leading to reporting of misleading income orlosses in the short-term financial performance of a company (Gjorgieva-Trajkovska andTemjanovski, 2010). As such, the investors do not realize the use of fair value accounting to
Assignment - Financial Accounting_3

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