Advantages and Disadvantages of Fair Value Accounting

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note

1
ACCOUNTING
Table of Contents
Introduction......................................................................................................................................2
Advantages and Disadvantages of Fair Value Accounting (FVA)..................................................2
Three Tier Process...........................................................................................................................4
Qualitative Characteristics of Financial Information......................................................................5
Conclusion.......................................................................................................................................7
Reference.........................................................................................................................................8

2
ACCOUNTING
Introduction
The main purpose of this assessment is to analyze the concept of fair value accounting
and how the same has affect the overall accounting process. The concept of fair value has an
important significance in accounting and is used for measuring the assets and liabilities of the
business. The fair value accounting principle requires businesses to value their assets and
liabilities at current values rather than historical values (Christensen and Nikolaev 2013).
However, there are certain debates and discussions which are associated with this concept which
can affect the investment choices and management decisions. This assessment aims to reveal
different aspects of fair value accounting and analyze academic journals for identifying the
importance of fair value accounting.
Advantages and Disadvantages of Fair Value Accounting (FVA)
FVA can be defined as an accounting process which allows the management of a
company to report the assets and liabilities of the business at such prices which are similar to the
fair values of the same. The advantages which can be identified for FVA are listed below in
details:
 Accurate Valuation: The method of accounting is known to provide more accuracy in terms
of financial reporting and valuation of assets and liabilities of the business. In case, the prices
are anticipated to increase or decrease the valuation of assets and liabilities of the business
would be showing such a fluctuation (Marra 2016). The company which applies FVA in
reporting enables them to present accurate financial statement. In such a case, the
management needs to prepare appropriate notes to account. Therefore, in other words, FVA
allows businesses to present a realistic position of the assets and liabilities of the business.