The Relevance of the Fair Value Accounting in the Contemporary World

Corporate Accounting 1
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Corporate Accounting 2
Corporate Accounting
Part A
The Relevance of the Fair Value Accounting in the Contemporary World
Accountants play a vital role in the measurement practice while evaluating the value
of assets and liabilities before the preparation of an entity’s financial statements for different
institutions in the world. The current accounting practice is very dynamic. This calls upon
accountants to be put in place fair value measurement technique, provide superior transparency,
equality and appropriateness when compared to the use of historical cost.
Fair value accounting can be described as the projection of value estimates of a
company if decides to sell its assets or exchange a liability using the prevailing market prices.
This approach is used in the valuation of assets or liabilities in the balance sheet. The fair value
of accounting can also be used to describe the prices of futures contracts which are at equilibrium
(Laux and Leuz, 2009, pp.830)
Fair value accounting according to Cheng, groups estimates into three categories. The
first level groups valuation basing on the market quoted prices and this applies to match assets
and liabilities in a given market. The second level includes estimates basing on marketplace
observables, examples are products which are the same but are not alike (Lodh, 2018, NP.). The
third level comprises of items which require a particular valuation approach and are
unobservable in the marketplace.
The significance of assets and liabilities evaluation using the fair value is to assist in
providing relevance to the users of the financial statement for example lenders, creditors and

Corporate Accounting 3
investors. When information is prepared using the fair value method it assists the investors and
other external users to make useful financial decisions and consequently, they are able to make
correct investment decisions. Fair value measurements provide investors with very appropriate
information that helps them visualize the true picture and accounting realities of financial
statements of different companies and institutions. Fair market value helps create a very
transparent environment for the external users of the financial statements, Bragg and Bragg
(2018)
Fair value measurements enable the external users of the financial statements to be able
to evaluate the growth of an entity, evaluate the expectations of an entity and therefore be able to
make suitable financial decisions (Lu and Mande, 2014, pp.95). Different investors look at the
financial statements using an international perspective and due to this, it is significant for
companies to utilize the fair value measurement approach which is widely used and accepted.
Fair value measurement technique acts as a good mechanism for investment attraction.
This technique helps the accountants to take care of other financial statement users’ needs
industrially and technologically. If the financial statement users find the financial statement
information to be useful and faithfully represented then they are able to invest in their
organization s, Cairns (2006).
Fair value reporting makes the information to be consistent, comparable with those of
other firms, makes the information convenience and increases its reliability, Herman and
Thomas, (2006). The financial statement users are able to compare the financial information of
the different company and due to this, they come up with good financial decisions.