Corporate Accounting- Fair Value Method of Measurement

Corporate Accounting- Fair Value Method
of Measurement
1 | P a g e

Table of Contents
Introduction................................................................................................................ 3
Relevance of fair value accounting in contemporary world........................................3
Applicability of fair value method in private or public organizations..........................7
Influence of Fair Value Method in crises.....................................................................7
Conclusion.................................................................................................................. 7
Bibliography............................................................................................................... 9
2 | P a g e

Introduction
The debate of evaluating assets and liabilities for financial reporting of any entity faces long-
term conflict of opinion between the critiques. One such evaluation method is considered as fair
value accounting. It is argued that historical cost method has obsolete concept and fair value
method of evaluating assets or liabilities has substantial ground to consider it as reliable. But the
critiques of this concept have their views, too. It is opined by the critiques that this valuation
method has to be passed through more researches to prove its worth and reliability as the
evaluation method for financial accounting purpose. The critiques named Laux and Leuz had
argued about the present status of fair value method with the opinion that more work is to be
done in this field to make it more reliable and realistic. As per Whittington, present business
situation is not static. Its dynamic nature demands evaluation of assets and liabilities in more
practical and realistic way to meet the objective of evaluation process. In this essay, the
discussion will evolve with the opinion and inferences of the critiques about the application of
fair value method of evaluation with its limitations and scope of further development for facing
crises to make it acceptable by the global accounting stakeholders for their satisfaction.
Relevance of fair value accounting in contemporary world
Right through the revolutionary thought of accounting principles related to measurement method
of accounting, the concept of historical cost method is replaced by fair value method of
measurement. This concept is considered as “a real shield” and “a revolution in accounting”,
which can enable to mitigate all the loopholes of using other measurement methods.
There are recent developments of financial crises cropped up by following fair value method of
measurement and this situation gives birth to the controversy of the authenticity of fair value
measurement method with its benefits and disadvantages. This scenario gives rise to the
questions of financial presentation of accounting reports following fair value method. Hence, to
justify the balance between relevance and credibility of the financial information prepared
following fair value method for financial statements, the problem of consideration persists in the
domain of certainty of erstwhile costs, as endorsed by historical cost method with the evaluation
of uncertain future value of financial instruments conceptualized by fair value method in respect
3 | P a g e