Under Historical cost method, assets are recorded based on the price at which such assets were originally purchased. The drawback of such system is that it does not account for the changes in the market price/fair value of the asset at future dates. The historical cost of an asset may not be relevant at a later point of time. On the other hand, under Fair Value accounting, assets and liabilities are recorded on the basis of current market value, thus the actual value/position of an organisation can be determined.
However, if market prices fluctuate quite often, it can be difficult to implement such system. Also, fair value determination is highly complex. It is also dependent on various assumptions and various methods of calculation adopted by the management in determining the fair value. The possibilities of mis-statement (or even fraud) are quite high. These factors can highly affect the reliability and relevance of financial statements.
discuss how moving from historical cost accounting to fair value accounting can affect the reliability and...
The trend toward fair value accounting By J Russell Madray, CPA The Debate Critics contend that GAAP is seriously flawed. Some in the accounting profession go so far as to pronounce financial statements almost completely irrelevant to the financial analyst community. The fact that the market value of publicly traded firms on the New York Stock Exchange is an average of five times their asset values serves to highlight this deficiency. Many reformers, including FASB chairman Robert Herz, believe that...
Discuss the difference between Historical Value and Market Value. How can accountant report on the financial statements?
ompare and contrast the use of historical cost and fair value accounting under both U.S. GAAP and IFRS. What are the challenges associated with establishing fair values? How can management address those challenges?
diffferentiate historical cost concept from the fair value cost from the fair value cost concept of measurement.State clearly their advantages and disadvantages
“Is It Fair to Blame Fair Value Accounting for the Financial Crisis”. People said, “Once we get beyond the mythmaking and arm waving, it becomes clear that historical cost and fair value accounting are much closer to each other than people think.” Do you agree with this statement? Discuss.
Differentiate historical cost concept from the fair value cost concept of measurement.
1.) Which of the following is an argument for using historical cost in accounting? A.) Fair values are subjective b.) Fair values are more relevant c.) Historical costs are based on an exchange transaction. d.) Historical costs are reliable. 2.) ___________ is not an accounting change.? _________ are fill in the blank questions
Disadvantages of air value accounting . discuss disadvantages of fair value accounting. Discuss
In accounting we record many assets at their historical cost. As an example, if a business purchased a building in 2005 for $100,000, the financial statements would continue to show that building at $100,000 on its books (less depreciation). However, everyone knows that real estate generally increases in value over time. So wouldn't it be better to reflect on the balance the current the market value of the building as opposed to its historical cost? Why does using historical cost...
Fair Value Measurements As you examined in this week's Discussion, fair value measurements can influence financial reporting. For an accountant, it can also be considered a moving target, especially when values of certain assets, such as financial instruments, are based on a changing market. The pressures associated with reporting according to fair value measurements also pose ethical dilemmas. As you prepare for this Application, consider how ethics impacts accounting practice and how final assenting and dissenting opinions of rule making...