FINANCIAL ACCOUNTING THEORY AND PRACTICE.

Running head: FINANCIAL ACCOUNTING THEORY AND PRACTICE
Financial accounting theory and practice
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1FINANCIAL ACCOUNTING THEORY AND PRACTICE
Table of Contents
Answer 1..........................................................................................................................................2
Literature review..........................................................................................................................2
Pros of FVA.................................................................................................................................2
Cons – FVA.................................................................................................................................3
Answer 2..........................................................................................................................................4
Three – tier process in fair value estimation................................................................................4
Answer 3..........................................................................................................................................5
Qualitative characteristics considered for FV method in the financial reporting........................5
Reference.........................................................................................................................................8

2FINANCIAL ACCOUNTING THEORY AND PRACTICE
Answer 1
Literature review
Fair value is considered as the price that can be used for exchanging any asset or settling
any liabilities at ALP (arm’s length price). Fair value accounting (FVA) is an old concept used
for preparing the business reports or for taking any business decisions. However, due to big
changes in the global economy over 20 – 30 years period, financial crisis took place in the year
2007 and the FVA concept came out as hottest topic to be considered as the agenda by the setters
IFRS as well as US GAAP standards. As per the research of Marra, (2016), proper balance has
been maintained by the pros and cons of FVA and lending importance on same. However, the
FVA concept is closely linked with requirements of the globalized economy (Iasplus.com, 2018).
Pros of FVA
 Timely information as specific information is used by the FVA approach that is based
on the time and the present scenario of the market it provides the most relevant
information in the timely manner that helps in relevant projection. Moreover, it creates
great value for the entity and encourages in taking prompt action.
 Accurate valuation – FVA approach helps to provide more accurate data in context of
the liabilities and the assets valuation. Further, if the prices are increased or decreased
the valuation changes accordingly moreover the current helps the individual or the
business to know the exact financial position (Demerjian, Donovan & Larson, 2016).
 Measuring true income – under FVA approach there will be less opportunity to
manipulate the data. Instead of using the sales value to record the losses or gains in the
accounts the asset’s value is tracked through the actual value or estimated market value.