Fair value accounting is the method that offers accurate asset as well
as liability valuation on a continuous basis to the users of an
organization. In the financial context, fair value is of paramount
importance since it can help companies to measure and report
specific assets and liabilities based on the estimated or actual fair
market price. Some of the elements that must be taken into
consideration in fair value accounting include payments made in
cash, as well as deferred cash. However, the chief consideration is
that the current value asset must be used while making the
calculations and computations. A company must adopt the fair value
accounting method while consolidating a subsidiary entity’s
statements with that of the parent organization.
The most valuable information for the management, lenders and
investors in relation to the fair value concept is the value of assets
and the overall accounting information and financial figures that have
been captured by following the specific concept. Since the current
value is taken into consideration, the information that is ultimately
made available to diverse stakeholders is accurate and relevant.
According to Werbin, the fair value accounting method must be
adopted while working on the financial reporting aspects since it can
help in addressing the deficiencies that exist relating to the
conventional accounting method (Wang & Werbin, 2018, p. 7). Fair
value is of high relevance for the executive and management team of
an organization since it can aid in the decision-making process
(Mccollum, 2008). By adopting the fair value method in the reporting
approach, it is possible to present a cohesive and integrated financial
picture of an organization and help users such as investors to
evaluate the liquidity and the financial flexibility of the business
entity. The rich insight can be of high value since it can help to make
important decisions in the organizational context.
References
Mccollum, T. (2008). Fair value under fire: new objectives for
presenting financial statements management overlooks HR risks
changing priorities for financial firms incentive cutbacks raise audit
concerns. Internal Auditor, 65(6), 13-15.
Wang, H., & Werbin, E. M. (2018). The compensation of CEOs and
the relevance of fair value accounting. Contaduría y
administración, 63(SPE2), 1014-1032.
