Week 8 Discussion Post 1 Document

Inregardtofairvalueaccounting,acompanyshouldconsiderunder

whichtierthepricingofthemajorityoftheirassetswouldfall.Ifthe

assetsaremostlylevel1then,"Level1inputsarequotedpricesin

activemarketsforidenticalassetsorliabilitiesonthemeasurement

date.Aquotedmarketpriceprovidesthemostrepresentationally

faithfulevidenceoffairvalueandistobeusedwheneveravailable."

(Whalenetal.,2017p.4-3c)Ifacompany'sassetswouldfallunder

level3wheretherearenocomparableassetsinactivemarketsthen

itmeansthepricingwouldbemadebyestimate.Atlevel3pricing,it

allowsforanoverstatementofvaluestooccurthereforethe

companyshouldusehistoricalcost-basedaccountingforaccuracy

andaversiontorisk.

Ithinkwhatismostvaluabletomanagement,lenders,

andinvestorsarethefinancialreportsandthestatements.They

providetheactualnumbersofacompanyfortheanalysisofanyone

interestedandforwhateverdecisionstheymayneedtomake.The

reportisalsovaluablebecauseitsummarizesinformationaboutthe

businessaswellasinformationonliquidity,turnovers,andchanges

betweenperiods.Thereportstranslatethenumericalfiguresofthe

statementswithoutbiasintofactsleavingtheinterpretationofthat

informationtotheuser.

Reference:

Wahlen,JamesM.,etal.Intermediate Accounting: Reporting and

Analysis.CengageLearning,2017.