Analysis of Fair Value Accounting: Pros, Cons, Three-Tier Process, and Qualitative Characteristics

Running head: FINANCIAL ACCOUNTING THEORY AND PRACTICE
Financial Accounting Theory and Practice
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Author’s Note

1FINANCIAL ACCOUNTING THEORY AND PRACTICE
Executive Summary
The main aim of this report is the analysis and evaluation of different aspects of fair value
measurement. The first part of the report aims at analyzing the pros and cons of the use of fair
value accounting in the companies. The second parts involves in the analysis of the process of
three-tier steps in fair value accounting. The last part involves in analyzing the qualitative
characteristics of financial information in the process of fair value accounting.

2FINANCIAL ACCOUNTING THEORY AND PRACTICE
Table of Contents
Introduction......................................................................................................................................3
Pros and Cons of Fair Value Accounting........................................................................................3
Pros..............................................................................................................................................3
Cons.............................................................................................................................................5
Three-Tier Process...........................................................................................................................6
Qualitative Characteristics...............................................................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

3FINANCIAL ACCOUNTING THEORY AND PRACTICE
Introduction
The concept of Fair Value Accounting is not new as the companies all over the world
have been using this method for the purpose of making effective business decisions. The
managements of the companies can obtain the present market values of their assets under the fair
value accounting that is also known as mark-to-market accounting. However, in the recent years,
there have been some major arguments on the fact that this fair value accounting had significant
contribution towards the world financial crisis. The main point of argument is that the fair value
accounting leads to fulfill the needs for information for decision-making while increasing the
complexity in the aspects of globalization and innovation-based economic system. The main aim
of this report is the analysis of different aspects of fair value accounting.
Pros and Cons of Fair Value Accounting
It is needed for the managements of the business organizations to consider both the pross
and cons of fair value accounting before adopting it for the business operations. The advantages
and disadvantages are discussed below:
Pros
Timely Information: Fair value accounting helps the companies in providing most relevant
information and estimates as it involves in the utilization of specific information for the time and
preset market condition. This aspect makes the firms able in taking prompt corrective actions
(Trajkovska, Temjanovski & Koleva, 2016).
Accurate Valuation: Fair value accounting assists the companies in providing more accurateness
at the time of the assets and liabilities valuation. The valuation will be auto adjusted when there