Fair Value Measurement in Corporate Accounting and Reporting

This report provides a comprehensive overview of fair value measurement within the context of corporate accounting and reporting, focusing on the Australian Accounting Standards Board (AASB) framework. It explains the significance of fair value measurement in accurately representing the value of assets and liabilities, thereby assisting investors in assessing a company's financial position. The report details several relevant AASB standards, including AASB 138, AASB 3, AASB 116, and AASB 13, which are used to determine asset values. It explores different valuation methods such as valuation method, cost approach method and income approach method as outlined in AASB 13, and how these approaches are applied in practice. The report also addresses specific standards like AASB 3 and AASB 116, highlighting their impact on asset and liability recognition and valuation of property, plant, and equipment. Furthermore, it discusses key elements of AASB 13, such as exit price, orderly transactions, and market participants, and how these elements influence the determination of fair value. The report emphasizes the importance of fair value measurement in financial reporting and its role in providing a true and fair view of a company's financial performance.

Running head: CORPORATE ACCOUNTING AND REPORTING
Corporate Accounting and Reporting
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1CORPORATE ACCOUNTING AND REPORTING
Part A: Fair Value Measurement
Introduction:
The fair value measurement is an adequate method that has been deployed by Australian
Accounting Standard Board (AASB) in their financial report framework. This method has
allowed the organisation to represent correct value of their assets, as it helps the investors to
detect their current financial position. Furthermore, the different fair value standard used by
AASB has also been addressed, which allows the investors to detect the fair market values of the
company’s position. The standard such as AASB 138, AASB 3, AASB 116, and AASB 13 is
mainly used by the organisation in Australia to determine the accurate value of their assets that
will be presented in the annual report (Aasb.gov.au 2019).
Explaining the accounting Standard on fair value measurement:
Fair value measurement is implemented by AASB in financial report framework to
identify the fair value of the assets listed by the organisation. The fair value method is listed in
‘AASB 13 Fair Value Measurement’ to detect the market value of assets that is being used by the
company in their operations. In addition, the fair value measurement is adopted by the
organisation to represent their correct valuation to the investors. There are different levels of
valuations, which can be conducted by companies to detect the market level of their assets and
liabilities. Moreover, AASB provides the organisation with valuation method, cost approach
method and income approach method, which can used for detecting the fair value of their assets.
Paragraph 62 of AASB 13 depicts the three-valuation method that can be used by the
organisation to detect the fair value (Aasb.gov.au 2019). Malone, Tarca and Wee (2016)

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mentioned that without the fair valuation process the organisation has to project abnormal loss or
gains in their annual report when disposing the assets of the organisation.
The initial method valuation allows the organisation to evaluate the useful lives of the
assets and compares with the market information of identical items. The income approach
method allows the organisation to discount the future cash flows and detect the present values as
per the market expectations (Majercakova and Skoda 2015). Lastly, the companies can use cost
approach method for detecting the replacement value of the assets. Companies for addressing the
fair value measurement of their assets can use the above-identified methods. The AASB 3 also
provides the organisation with recognition method of detecting the fair value of liability and
assets, which are transacted. The Paragraph 3 of AASB 3 indicates that transactions conducted
for acquisition of assets and liabilities conducted by the business. The Paragraph 18 of AASB 3
also indicates that acquisition conducted by the organisation needs to be realised at the fair
values, where dates of acquisition is used for detecting the actual values of the assets
(Aasb.gov.au 2019). In addition, under the Paragraph 18 of AASB 3, the acquiree realizes the
transfer of the assets at fair value, which need to be at the acquired date. Furthermore, the
organization needs to evaluate the assets on the date of the acquisition, where the assets have
been transferred from the acquiree to acquirer. The further evaluation of AASB 3 Paragraph 45
directly helps in detecting that when it is not possible to ascertain the fair value before the end of
the accounting year adequate provisional amounts needs to be recognized depending on the
reasonable estimate. This would eventually help your organization to portray the actual valuation
of the asset at the end of the fiscal year (Yao, Percy and Hu 2015).
Property, plant and equipment valuation is depicted in Paragraph 15 of AASB 116, which
allows the organization to portray the actual value of the assets in the financial report. Moreover,

3CORPORATE ACCOUNTING AND REPORTING
the AASB standard also highlights the measuring classes of property plant and equipment in
accordance with the revaluation model or cost model. Furthermore, the standard also indicates
that the value of PPE is measured by deducting the accumulated depreciation and impairment
losses from the actual cost of the assets. This eventually allows the organization to detect the
accurate value of assets of an organization, which is portrayed in their annual report. Moreover,
the revaluation model is used by the organization to revalue their assets and detect the fair value
that can be portrayed in their financial report (Laing and Perrin 2014).
Moreover, AASB 13 highlight three different elements that needs to be understood by the
organization (Aasb.gov.au 2019). The three elements of the standard are exit price, orderly
transactions and market participants, which highlights actual valuation of asset. The exit price
defines the selling price of an asset of the liability, which is conducted by the organization. The
second element that is evaluated by organization is orderly transaction, as it enables the
organization to use marketing activities for transactions of the assets or liabilities. The third
element is the market participants, which is categorized under fire sensors for detecting the most
beneficial market value of the Asset or liabilities. Moreover, AASB also provides information on
the incremental direct cost for transferring liability or selling assets at the market value. This
directly indicates that the organization incurs transport cost for transferring the asset from one
location to another. Hence, the additional cost is added to the transfer value of the asset by the
organization during the selling or buying process (Bond, Govendir and Wells 2016).
Conclusion:
Fair value measurement is considered one of the essential AASB standards, which forces
the organization to portray fair value of the assets in the annual report. Moreover, there are
different methods that can be used by the organization in value in their assets as described by the

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AASB standards. Furthermore, the fair value measurement Method can increase relevant issues
for the organization, which needs to be disclosed in the annual report with adequate explanation.
in addition, the AASB has been altering the fair value measurement methods for fixing the
imperfections and detecting the adequate method that can represent the actual value of an asset.
Hence, it could be understood that with the help of fair value measurement organizations are able
to portray the actual value of total assets in their financial report.

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References:
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB13_08-15.pdf [Accessed 25 Jan. 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB3_08-15.pdf [Accessed 25 Jan. 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf
[Accessed 25 Jan. 2019].
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), pp.259-288.
Laing, G. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB 116 non-
current asset measurement models. International Journal of Critical Accounting, 6(5/6), pp.509-
519.
Majercakova, D. and Skoda, M., 2015. Fair value in financial statements after financial
crisis. Journal of Applied Accounting Research, 16(3), pp.312-332.
Malone, L., Tarca, A. and Wee, M., 2016. IFRS non‐GAAP earnings disclosures and fair value
measurement. Accounting & Finance, 56(1), pp.59-97.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit
fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.