Relevance of Fair Value Accounting in Corporate Accounting

CORPORATE ACCOUNTING 1
CORPORATE ACCOUNTING

CORPORATE ACCOUNTING 2
Part A:
Relevance of fair value accounting:
This is the one wherein an asset or a liability is capable of being exchanged in the market at
its existing transaction price between the knowledgeable and the parties that are not related
with one another. This method is used for the purposes of estimating the price of the product
or a service when there is no actual transaction for that asset or the liability. Thee main aim of
the stated fair value is the fact that the exchange price of the asset or the liability is well
defined and the same is reported in the financial statements at it’s current value. Hence in the
nutshell, the fair value is the amount that is exchanged between the two parties that are not
connected with each other but this is the price which depends upon the value in use for the
entity. In order to illustrate, the value of the swap derivative to the bank is equal to the price
which incurred to sell it and this value of the swap does nor depend upon the assets and the
liabilities that are in existence as in the balance sheet. This Mark’s as a very strong
assumption for the purposes of
measurement of the various assets and the liabilities that are incapable of being traded
(Georgiou, 2017).
This method is criticised on many grounds. The various model of accounting pertaining with
the accounting goes much way beyond the scope of the financial instruments and the banking
sector. There are accounting standards that are related with the various business combinations
along with the calculation of the amount of the depreciation which extends to the depreciable
assets. This is connected with the companies that are of certain sizes. This change in the
accounting concept relates to the changes in thee core function or the framework which forms
the very basis of the future standards of IFRS. This is a new concept of accounting concepts
that not only needs the adjustment of the financial communication which is to be made along

CORPORATE ACCOUNTING 3
with the analysis of the various practices that are being followed but this also needs the
redefining of the respective roles of the statement of financial accounts. The setters and the
relevant authority of the accounting standards are looking for the ways through which the
relevant accounting information could be made in line with the accounting numbers, the
indicators of the management and the company value. The debate over the use of the fair
value accounting is far from over and there is a need of questioning the purposes of the
financial statements and the ways in which the same could be used. An advantage of the same
is the fact that these discussions are very much beyond the technical consideration of the fact
that the use of historical cost serves to be a much better method of valuation along with the
various underlying economic issues ("Fair value accounting", 2019)
Also, in the light of the current financial constraints that the company faces today. This
method need not be blamed for the purposes of the economic downturn. The root cause of the
issues is the fact of financial reporting. This concept uncovered the unhealthy practises that
were being followed by the company and this helped in revealing the healthy from the
unhealthy companies. The measurement of fair values helps in the process if allocating the
scarce resources that the company might have. This could be said in the light of the fact that
the fair value measurement helps in the accelerating of the prices and the allocation of the
resources of the process of adjustment which helps in achieving financial stability for the
company. The fair value is the market price that meets the different expectations of the
participants in the market about the future demands and the supply of the products and the
services (Landsman, 2005). Hence, the determination if the market prices plays a very vital
role when it comes to the smooth functioning of the economy as a whole. This concept is not
directly connected with the fall of the financial crisis but there are many issues that needs to
be taken care of. Ta classic example of the same is the valuation of the financial instruments
that qualifies for the level 3 fair value hierarchy. This is the valuation hierarchy that has an