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.
a a a a 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.
