Abstract

Describe about some basic ideas about the requirement for financial information.
 

This is a detailed written study of a single specialized subject provides a historically informed matter of relating to or based on mental concepts and procedural issues related to the use of the right value measurement assign in financial reporting. Our aim is to provide a structural which based on the mental concepts and procedural issues frameworks of the Financial Accounting Standards Board and International Accounting Standards Boards, for researchers and evaluations of the factual research studies that investigate the properties which are based on information of all measurement bases, including values which are of fair kind. We start by structuring, addressing a view of miscalculation about and gives a history in short not in detail of the fair value measurement assign. Then we talk about the decision usefulness of fair value and other measurement bases and give description and evaluate examples of research which are seen research that documents decision usefulness of recognized and fair value which are disclosed fair value information, focusing on those abilities which are relating to or having the effect of predicting an event or result ability, value relevance and risk relevance. We also talk about the role of to prove the truth in the context of related and faithfully represented accounting information, in which description of three untested, something to prove the truth related maintained assumptions that arise in discussions of fair value measurement research and discuss research designs for look into the questions related to accounting measurement to prove the truth. Lastly, we talk claims that use of the right value or fair value measurement attributes causes ho an economic quantity is related to economic fluctuations behavior among financial institutions and that accounting standards have become goes on increasing in a fair value oriented during the last period of  twenty years.

In this lesson we are going to introduce some basic ideas about the requirement for financial information and the users of financial information and it also covers the definition of financial reporting and its utilization of accounting information in the organization, At last, the major types of systems in organization and the financial systems which are talked about.

• Accounting process of recording, analyzing and summarizing transactions of a business and communication that data to decisions makers.
• The types of business are sole trader, partnership, limited liability, non commercial such as clubs, charities.
• Financial reporting involvement of producing financial statements for users.
• The users which include management, shareholders, customer, finance, regulatory, authorities, employees, common public.
• In business systems the accounting system is only one part of the whole business system.
• The other systems which includes purchasing resources of the human, finance, sales and administration of the marketing.
• The system of accounting may be computerized or manually also. 

The main reason of this detailed written study is to talk about the practical and issues which are based on concept related to fair value measurement in financial reporting and to evaluate research design aspects of research which are factual that look into the information properties of fair value measurement, both in an absolute, sense an d also compared to other measurement bases.  

Introduction to Accounting

This chapter introduces the concept of the fair value measurement as that term is now used in both U.S. GAAP and IFRS i.e. International Financial Reporting Standards [2.1 subsection] and talks about the uncertainty that can result from combining two or more sets of information into one about the idea of measuring financial statement elements at fair value with the thought process of fair value accounting [subsection 2.2] The subsection 2.3 talks about the other measurement that ascribe and that may result into the same amount as a fair value measurement and particularly at foundation and comparing to fair value measurement value in use measurement. Subsection 2.4 tells about the criteria that might be used to decide if fair value should be required or officially allowable to do something for specific statements which are based on financial items i.e. the financial statement items (Wallison, 2009).

The meaning of fair value is to be most recognized and information which are in disclosed in nature and that is measured using the fair value measurement assign and its framework for fair value measurement in the U.S. GAAP are codified in FASB Accounting Standards Codification Topic 820 i.e. asc820 . The ASC’s brief kind of dictionary which tells about fair value as the price that would be get to sell an asset or property or paid transfer a liability in an orderly kind of transaction between participants in the market at the date of measurement. In the starting of January 1, 2013, U.S. and international guidance for fair value measurement is mostly protected.  It is because the rest of the distinctions between U.S. GAAP and IFRS are not significant, as because their point of discussion will focus on U.S. GAAP with the understanding in which most of the matters would use to IFRS as well. The ASC 820 gives the meaning about fair value by applying an exit sort of a price i.e. the exit price perspective instead of other believable perspective, as like entry price as just for example, ASC 810 -10 -55-46 through -49 tells in detail about a case in which two counterparties to a transaction which have access to different sort of markets which might have different exit prices, for example a dealer market against a retail market. ASC 820-10-30-6 suggest that the distinction between exit prices and entry prices which are assumed sort of prices could resulted into in an identification of profits or losses at initial identification of an asset or liability.

The Evolvement of the Concept of Fair Value as a Measurement Assign in Financial Reporting and its Application

If they look into the matter the financial assets which are valued from the perspective of a measurement date exit price that takes into account the market and equivalent risks in-born in the financial asset or groups of financial assets, depending on the structure of the market. ASC 820-10-35-9A gives the definition of the fair value of liabilities to be the price at which the liability would be sent to a market participant on the date of measurement and ASC 820-10-35-54H directly rejects measuring liabilities at the amount the responsibility is expected to be placed with the equivalents otherwise it came to an end(King, 2008). 

The method of the fair value measurement assign in reporting of the financial matter which often combined with other accounting issues. In this context of subsection, they consider two types of issues which are vital, and both of them often come out in discussions of fair value accounting. The first and foremost issue is that how to show changes in fair value of assets and liabilities, and most generally if such changes should or should not be given in net income . The second issue is if the conceptual framework of FASB has within materials or indicates a balance sheet sort of approach that suggests indirectly or directly approves fair value measurements. So, they have seen the discussions over the display of changes in fair values of assets and liabilities as in fact and matters, the discussions is all about how to give the explanation on a substance a one type of income which is to be labeled net income or in IFRS it is profit. Thus this discussion is goes through outside the matter of the debate and goes further if financial statements items are to be measured or not at fair price, as they do not consider it thereafter (Rayman, 2006).

In this whole topic it is all about the discussions on the measurement of the fir value comparing to other bases of measurement. So at first they discuss about the measurement assigns which given as an orderly-wise system in the Conceptual Framework of FASB which is having a special attention is FASB SFAC 5, Recognition and Measurement in Financial Statements of Business Enterprises (FASB, 1984a). The subsection which considers in the second position is value-in-use measurement and in particular the similarities and the distinction in between this measurement assign and fair value and why even whether the fair value of net assets will never equal the equities market value nor it would it be anticipate doing so.

Distinction of Fair Value Measurement from Fair Value Accounting

The other thing is also comes is the historical cost in this cost amount of cash or its equivalent for paying to obtain an asset which is commonly adjusted after purchasing for amortization that means amortization is an accounting term that refers to the process of distributing the cost of an intangible asset over a period of time. Amortization refers to the repayment of loan principal over time or other distributions. Current cost or replacement cost is also a one thing in which the amount of cash or it’s identical that would have to be paid whether the same or an identical asset were purchased currently (Beaty and Santoso, n.d.).

This is about subsection; they consider different kinds of criteria that might be applied to require or allow fair value measurement which are relevant as described in above of FASB SFAC 8  conceptual framework for Financial Reporting (FASB, 2010); dependable, as discussed in FASB SFAC 2 Qualitative characteristics of information on accounting (FASB, 1980) and FASB SFAC 5 , Identification and Measurement in Financial Statements of  Business Enterprises (FASB, 1984a); in comparison of something as discussed above in FASB SFAC , Conceptual Framework for the Financial Reporting (FASB, 2010)and also if fair value has practical utilizations (Bank commercial loan fair value practices, 2007).

In the measurement in financial reporting there they have seen so many changes but now they are going to focus on the limitations of present value as a measurement base in giving of decision-useful information. So there is so much to discuss on the limitations of present value which are discussed below.

So, by using this method the property is valued and based on the present value of anticipated future economic benefits which equals to the usable value. So for example, asset may be valued based on the discounted value of anticipated future rents. There is broad agreement that is based on concepts and this is the best type of approximation to the values of those economies which are true in nature. The vital weakness of this process is the problem of determining the specific future cash flows relates to the property and which is usually quite subjective and thus of value which are of doubtful to statement users. Generally this process is primarily applied for long term monetary assets like leases, bonds and in which the future cash flows are mentioned by contract and after that it will be determined as a source of objective. For those assets which are non-monetary in nature and other thing it is almost impossible to get to know their future cash flows limitations of “present value” as a measurement base (Spiceland, 2009).

• Market value of information

The market value of information is the amount that other business firms are made to pay                                                   for it. By using the information and online checking of things is broadly traded as goods. Data may be sold as goods or paid for on a usable purpose. Market value is commonly only applicable to a matching small proportion of a firm’s data. The data cannot be purchase and sold in the same process as other assets and is often only of value as part of running concerns and thus it is most data has no reselling or value of liquidation. The last but not the least thing is the firm’s business does not permits to sell or transfer the information for those reasons in some kind of state in which one is not observed or disturbed by other people (Roels, 2010).

• Utility Value of information

The utility value of information is measured by the advantages that can be derived from in future cash flows terms.  A huge electronics organization in the United States apply this method to value their transaction of customer information in one single product line at $20 million. It is done by using managerial judgement to calculate the rising revenues or lower costs to the groups as it resulted of having the data. A decision calculus methodology is used to give assistance to the managers in arriving at the approximation by using a series which relates to or in the involvement of iteration and this sort of series consist of questions and answers (Accardi, Freudenberg and Ohya, 2010). 

References

Accardi, L., Freudenberg, W. and Ohya, M. (2010). Quantum bio-informatics III. Singapore: World Scientific.

Bank commercial loan fair value practices. (2007). Washington, D.C.: Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board.

Beaty, H. and Santoso, S. (n.d.). Handbook of electric power calculations.

King, A. (2008). Executive’s guide to fair value. Hoboken, N.J.: J. Wiley.

Rayman, R. (2006). Accounting standards. London: Routledge.

Roels, J. (2010). Information asymmetries and the creation of economic value. Amsterdam: IOS Press.

Spiceland, J. (2009). Intermediate accounting. Boston: McGraw-Hill/Irwin.

Wallison, P. (2009). Fixing fair value accounting. Paris: OECD Publishing.