ACC202 - Corporate Accounting: Fair Value Accounting Essay

This essay delves into the complexities of fair value accounting, examining its relevance in the contemporary world, particularly within corporate reporting. It explores the arguments surrounding fair value, including its application across both private and public sector organizations, and its potential influence on financial crises, such as the subprime crisis. The essay references key accounting standards, such as IFRS 13 and AASB, and discusses the advantages and disadvantages of fair value accounting, considering its impact on net income, investor decision-making, and the overall accuracy of financial statements. It analyzes criticisms related to the method's subjectivity and potential for manipulation, while also acknowledging its role in providing realistic financial statements. The essay concludes by emphasizing the significance of fair value accounting as a crucial tool for providing investors and stakeholders with accurate financial information, and its potential to shape the future of financial accounting. This essay is a response to the assignment brief and the arguments of Laux and Leuz (2009) and Whittington (2008). The essay is well-researched, using appropriate academic and professional sources.

Corporate Accounting

Contents
Corporate Accounting......................................................................................................................1
Introduction......................................................................................................................................3
Part A: Writing Essay......................................................................................................................3
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

Introduction
The term fair value is considered as the price that would be received through the sale of the asset
of the organisation. This is considered to be the theory with the help of which the price of the
asset of the organisation is defined. The government of the country has made various rules
regarding the fair value accounting through which they are able to provide the best disclosure of
the price of the asset that is used for this purpose. The Australian valuation helps in providing the
accurate and robust valuation which is in accordance to the international & Australian
accounting standards or the international financial reporting standards. this essay is based on the
valuation of the asset on the basis of the fair value. Here in this essay it would be considered
whether the fair value and is used by the public and private institutions of the country. Also, the
influence of the fair value accounting would be considered and the influence of the accounting
on the crises in the contemporary world would be considered.
Part A: Writing Essay
Australia has one of the most prominent accounting board in the world which helps in
formulation of the accounting policies and standards at a level through which the organisation
are able to disclose the correct value of the assets of the organisation. the fair value measurement
is one of the main standards that is purported by the AASB which is defined under rule 13 of the
act. In Australia the IFRS 13 applies which was made applicable for the purpose of annual
reporting in the year 2013. The standard was considered to be having the objective where it helps
in defining the fair value of the instrument, it set out single standard and framework for the
purpose of measuring the fair value of the product. It also has the objective where it helps in
making the disclosure about the fair value of the measurements.
For the purpose of valuation requirement of the property, plant and the equipment of the
organisation this is considered that the organisation must use the fair value method for the
disclosure of the asset of the organisation on the market value. This is considered that fair value
is considered as the price of the asset of the organisation which would be received by the
organisation at the time of sale of the asset in the market or at the time of making the transfer of
the asst for the purpose of the settlement of the liability that would be recorded in the books of
accounts. The term fair value is market-based measurement with the objective of showing the
correct estimate of the selling price of the asset. As this is seen that the main objective of the
financial reporting is to provide the true and the accurate value of the asset of the organisation.

hence for this purpose the best method that is applicable to them includes the fair value method
as this show the value of the asset at the fair value. For the purpose of making the investment this
is seen that investors are considered to have the fair value of organisation’s financial accounts
and hence they the companies and their accountants are required to record the asset at the fair
value that is prescribed. This is seen that the investors needs are considered to be highly
representative and it is considered that the financial account of the organisation are needed by the
maximum number of the users of the organisation. the fair value method of measurement of the
asset of the organisation is considered to be one of the most controversial method that is argued
by most of the accountants in the world. this is seen that measurement of the accounting element
is considered to be crucial factor which is used for the purpose of preparing the financial
statements of the organisation. as this is seen that the fair value method of accounting is used by
various organisation hence this can be considered that there are various advantages and
disadvantages that are related to this method of valuing the asset. Some of them includes,
reduced net income, this method helps in reducing the net income of the organisation as the asset
of the organisation is valued at the lesser price normally hence if the price of the asset of the
organisation decreases then the net income of the organisation also decreases. It is seen that if the
income of the organisation would be less than the organisation would have to pay a lower
amount of tax on the same. The fair value method also helps in giving the realistic financial
statements which helps the investor so the organisation to make the decision that is best and
realistic. This is considered that when the asset and the liabilities of the organisation are valued
at the actual value then it leads to more realistic financial statements. This is seen that companies
should value the asset at the fair value as this helps them to maximise the performance and this is
considered to be ethical for the organisation so as to provide the value of the asset at the fair
value for the investors so that they are able to make the decision for the investment in the
organisation.
The fair value accounting is considered to be pertinent for all the organisation whether they are
private firms or the public institutions and hence for this purpose they are supposed to provide
the fair dealing of the asset of the organisation. this is made mandatory by the AASB 113 so as to
apply the fair value method for valuation of the asset of the organisation. The fair value
accounting is used by both the types of the organisation so that they are able to record the

transaction at the market value and are able to associate the financial data of the organisation on
the reliable basis.
This is seen that there are various opponents of the fair value reporting where they implied that
financial reporting on the fair value basis has led to rise of the financial crises and has
significantly deteriorated the impact of the affected organisation that is considered for this
purpose of the study. the fair value accounting is considered to be having the significant amount
of the criticism that is faced through the way of the banking sector. This is seen that there is the
criticism that is related to the method that is used for the purpose of making the calculation that
is based on the fair value method. Here this is considered by the accountant the by using the fair
value method they are not able to make the judgment on what has materialized their asset and
what the administration would be able to do with the asset that they have. Also, while discussing
the criticism that is related to the fair value of the asset of the organisation there are various
advantages that are related to it. some of them incudes that the fair value method helps as a
messenger of what actually is happening with the organisation.
This is seen that with the recent development on the several important opinions of the fair value
accounting. The fair value method has become little pervasive to the financial reporting and this
helped in making the underrepresented shift in the content of financial statement of the
organisation. it is considered that with the changes in the financial asset of the organisation
several new issues has been generate from the same which includes that if there is unrealised
gains or losses from the change in the fair value of the asset then it would imply that dividends of
the organisation would be paid in advance and the cash flow would be considered to be obtained
for this purpose. also, this can be considered that subjectivity in the fair value of the asset of the
organisation makes way for the manipulation that may happen while valuing the asset of the
organisation. this is seen that the fair value may be considered to be unreliable as there exist the
intrinsic error in the measurement or the input to the measurement. Hence this can be considered
that there are various concerns that related to the fair value measurement of the asset of the
organisation which includes, Unrealised profits, consistency of the measurement, significance of
the measurement that is made, suboptimal behaviour that is related to the valuation of the asset
of the organisation.

Hence this can be considered from the above report that the fair value accounting is considered
to be future of the financial accounting. As this helps in identifying the information that is best
suited for this purpose of the investors and the stakeholders of the organisation.

Conclusion
From the above essay this can be decided that the fair value accounting is considered to be the
tool through which the organisation is able to provide the investors true and the accurate value of
the affairs. Through this the investors of the organisation are able to make the decision for the
purpose investment in the organisation. also, this is seen that the fair value accounting is
considered to be best method for the purpose of making the accounting best and suitable for the
stakeholders of the organisation.

References
Lodh, S. C. (2018), ‘Conventional accounting in determining an enterprise’s wealth: Sign or
referent a theoretical discourse for augmentation’, International Journal of Critical Accounting,
Vol. 10, No. 5. pp.341-362.
IFRS 13 - Fair Value Measurement, 2019. [Online]. Available through
https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professionalresources/ifrs-
factsheets/factsheet-ifrs13-fair-value-measurement.pdf?la=en.