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IFRS 13 Fair Value Measurement
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IFRS 13 Fair Value Measurement
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Course Code: IFRS 13
University: Victoria University
MyAssignmentHelp.com is not sponsored or endorsed by this college or university
Country: Australia
Question:
The author states that the conceptual framework introduced by the IASC is a complete flawed and unworkable practice for fair accounting valuation of financial instruments. The trend of fair value account that will be adopted by the IASB is critical criticized by the author by stating that adoption is result of trend setter for a long term theory based approach with theoretical assumptions and practice having no real relationship to the practical accounting environment (Bratten, Causholli & Khan, 2016). IFRS 13 Fair Value Measurement.
Answer:
Financial instruments and performance reporting
As stated in the article by Horton, J & Macve, R 2000, ‘”Fair value” for financial instruments: how erasing theory is leading to unworkable global accounting standards for performance reporting’, Australian Accounting Review, vol. 10, no. 21, May, pp. 26–39 it has been reported by the authors that fair value measurement under the IFRS and principles of IAS faced various problem. The author state that current the International Accounting Standards setting board are facing problems as there are political as well as economic debate over the e pricings of international stock exchange (Bens, Cheng & Neamtiu, 2015). The Author wants to show that currently IASC is pursuing for proposals under the action of accounting for financial instruments. The author states that the conceptual framework introduced by the IASC is a complete flawed and unworkable practice for fair accounting valuation of financial instruments. The trend of fair value account that will be adopted by the IASB is critical criticized by the author by stating that adoption is result of trend setter for a long term theory based approach with theoretical assumptions and practice having no real relationship to the practical accounting environment (Bratten, Causholli & Khan, 2016). The author has criticized the fair value accounts will be mere of accounts of financial instruments current value that we derived from deprival value that was restated under the Accounting Theory Monograph 10. The author has in this journal tried to criticized the accounting standards set under the IASB and FASB to be a completely flawed and unworkable process. According to these accounting standards, fair Value is the value at which the assets are to be sold or purchased. In this sense, the author heavily criticized the definition set out by the standard setter regarding the fair value. The author feels that selling and purchasing price of the financial instrument or asset depends of the price maker and price takers. It is the demand of the buyer and seller to set the selling and purchasing price of the financial instrument hence there is no accountability of predictions that can be made under the flawed accounting standards set by FASB and IASB (Durocher & Gendron, 2014). The author states that in the case of monopoly there will be standards set for fair value of financial instrument will not stand because the selling price will rest in the hand of the owners. In this case the author has criticized the approach of standards setting to be fundamental and theory based with no real practicality involved. The author has criticized the standards set to be not standing in case of changing interest rate for financial instrument. Which make the standards non-viable in chase of high unstable market conditions. Overall it can be said that the author has describe the negative effect of Fair value standards which will be affecting the reporting process of organization as set by the IASC and FASB which is justified through the claims made by the following in the criticism made by the following (Glover, Taylor & Wu, 2016).
Prepare and Reconcile Variable Costing Statements
As it can be seen that in the early stages of the financial crisis in 2008 financial standards where criticized to play a major role in weakening the financial position of many firm. The weakness in financial standard related to fair value measurement of financial asset was held a major problem for weakening the financial position of various forms under the crisis time (Lawrence, Siriviriyakul & Sloan, 2015). It can be said financial standards were not only responsible but overall the effect of weak financial standards were one of the major causes that led to companies facing cash crunch leading to the market eclipse of 2008. It can be said that the trust of films in financial systems decreased to lack of effective standards in valuation of financial instrument. Fair value measure was highly criticized by the firm in order of providing wrong and inefficient financial information regarding the true and fair financial position of the company. It can be said that fair value measurement is know to be a major loss of financial standards setting which resulted in overvaluation and undervaluation of assets which showed the wrong financial position of the companies effecting its overall management system (Song, 2015). It can be said that fair value measurement of financials set also led to misrepresentation of profit margin earned by the company in their financial year. It can be said that there were major lakes in the system of fair value measurement due to which the company practicing the measurement system lacked effective knowledge regarding their real time financial value. It can be said that prior to the financial crisis there were instability of the market economy. The valuations of stock on fair measurements were one of the major consequences faced under an unstable market. Unstable rate of interest led differentiated market results causing to writing representation of monetary value that the firm possessed. In this the financial position or the financial value of the company was either overvalued or undervalued weakening the reporting system of the organization or passing on wrong information about the financial conditions of the company. As this much of wrong information is passed through process it was not able for the management mitigate the situation of financial crunch within the firm (de Jager, 2014.). This leads to financial downfall of the organization in the economy as well as financial crisis within the market. It can be said that the firm were not able to identify their real financial position due to which identification of possible financial measure was not taken. All of these sequences lead to error in judgment causing financial problems within a firm and decrease cash value of the former. Thus, it can be said fair value measurement is one of the major contributor to the financial crisis in the year 2008.
References
Bens, D. A., Cheng, M., & Neamtiu, M. (2015). The impact of SEC disclosure monitoring on the uncertainty of fair value estimates. The Accounting Review, 91(2), 349-375. https://doi.org/10.2308/accr-51248
Bratten, B., Causholli, M., & Khan, U. (2016). Usefulness of fair values for predicting banks’ future earnings: evidence from other comprehensive income and its components. Review of Accounting Studies, 21(1), 280-315. Retrived from:https://link.springer.com/article/10.1007/s11142-015-9346-7
de Jager, P., 2014. Fair value accounting, fragile bank balance sheets and crisis: A model. Accounting, Organizations and Society, 39(2), pp.97-116. https://doi.org/10.1016/j.aos.2014.01.004
Durocher, S., & Gendron, Y. (2014). Epistemic commitment and cognitive disunity toward fair-value accounting. Accounting and Business Research, 44(6), 630-655. https://doi.org/10.1080/00014788.2014.938012
Glover, S. M., Taylor, M. H., & Wu, Y. J. (2016). Current practices and challenges in auditing fair value measurements and complex estimates: Implications for auditing standards and the academy. Auditing: A Journal of Practice & Theory, 36(1), 63-84. https://doi.org/10.2308/ajpt-51514
Lawrence, A., Siriviriyakul, S., & Sloan, R. G. (2015). Who’s the fairest of them all? Evidence from closed-end funds. The Accounting Review, 91(1), 207-227. https://doi.org/10.2308/accr-5115
Song, X. (2015). Value relevance of fair values—Empirical evidence of the impact of market volatility. Accounting Perspectives, 14(2), 91-116. https://doi.org/10.1111/1911-3838.12045
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