Fair Value and Conceptual Framework

Introduction:

This question depict about the conceptual framework which assist the organization into financial reporting by offering them clear concept. Following are some of the relevant concept of conceptual framework which would help the organization into reporting the financial figures in a great manner. Conceptual framework is a technique for accomplishing the task perfectly. It is a fundamental concept which allows the person, accountants and auditors in preparing the understanding the final reports.

Fair value:

Fair value is the nominal value which is the real value of an asset in current scenario. It is the total value which is currently an asset possess in the market. Fair value is the price that would be got by organization to sell assets or paid for a liability to transfer it. This price depends upon the transactions between measurement date and market participants.

Advantages and disadvantages:

Conceptual framework has some pros as well as some cons. Conceptual framework is significant for the internal and externals stakeholders and other users to interpret the data and offer them the best of the result as it relies over the materiality, reliability and faithful concepts whereas it also has some cons as it lies upon many assumptions and thus the outcome of conceptual framework are  not meant to be reliable fully (Whittington, 2008).  

Elements of conceptual framework;

Conceptual framework lies upon many assumption. It takes many techniques and tools in consideration for preparing the final reports. It lies upon concepts, tools, techniques, laws, statues, regulations etc.

Objectives of framework:

Conceptual framework is used by the organization to make it simple for every user to understand the final financial statement of the company so that the best decision could be made. It resolves all the issues and disputes, assist the users, set common principles and ease in comparison (Schroeder, Clark and Cathey, 2001).

Example of faithful representative:

Conceptual framework considers the reliability and faithfulness. This could be understand through an example such as conceptual framework take all the material information in consideration while preparing the final statements. It verifies all the invoices, bank statements, purchase report etc while preparing the final statements so that a faithful information could be given to the stakeholders.

Example of relavent information and material information:

Conceptual framework offers many relevant information to the internal stakeholder, external stakeholders and other users of the final financial report of the company. For example, conceptual framework offers the fair value of the asset of an organization so that the best decision could be made by the stakeholders about the worth of the organization (Whittington, 2008).

How to improve conceptual framework:

Conceptual framework could be improved through reducing the level of assumptions and by considering all the material aspect. Conceptual framework must be planned by considering the IASB and FASB both so that the auditor, stakeholders and other user does not get confuse and could analyze the relevant information.

Through analyzing the report it could be said that conceptual framework is important for an organization to monitor and prepare the final reports.

Tools for Measuring Fair Value

Introduction:

This question depicts about the fair value concepts. IFRS 13 represents the concept of fair value accounting. This depict that a single framework of IFRS must be opted by every organization so that every asset could be recorded on its fair value. This concept depict that every asset must be recognized into the books according to the fair value hierarchy or exit price.

Fair value is the price that would be got by organization to sell assets or paid for a liability to transfer it. This price depends upon the transactions between measurement date and market participants.

Tools of measuring fair value:

IFRS 13 depict that fair value could be measured by an organization through analyzing the market condition and the worth of the asset or liability in the market. Fair value is basically measured on many levels to analyze the true worth of the asset. For measuring the worth of fair value, it has been analyzed that how much amount would be get by the organization while selling the asset or transferring the liability (Ross, Westerfield and Jordan, 2008).

Historical cost:

Historical cost is the cost on which the asset or liability of an organization has been bought or sold in the market. This cost does not offer a true worth of the asset or liability as the cost depict through this concept is quite outdated (Moser and Ekstrom, 2010). This concept could not be used by an organization for future prospective as it only offers the information about past. More, any current changes in the market are not considered through his concept.

Fair value

Fair value is the nominal value which is the real value of an asset in current scenario. It is the total value which is currently an asset possess in the market. Fair value is the price that would be got by organization to sell assets or paid for a liability to transfer it. This price depends upon the transactions between measurement date and market participants, fair value offers a great deal to the organization as future could be estimated through this concept and planning could be done accordingly.

Challenges and measurement:

IFRS 13 depict that it is not easy for the organization to analyze the fair value as many assumptions are used while calculating the face value of an asset or a liability. Some of the challenges while measuring the fair value  of an asset or liability are assumptions, lack of entire knowledge of market condition, assumptions over the worth of asset, lowest priority, less knowledge of accountants, extra cost consuming etc. thus it becomes difficult for the organization to analyze the real worth of the asset and liability (Moser and Ekstrom, 2010).

Thus through analyzing the IFRS 13 it could be said that fair value concept is quite wider and must be opted by the organization to depict a true picture of the organization to the stakeholders.

Introduction:

This question depicts about the purpose of financial report. It is commonly said that financial reports are only prepared to identify the worth of shares. But financial reports are also prepared for many other reasons. Capital market research takes consideration of final reports of the company to identify the worth of share price of the company.

Advantages and Disadvantages of Conceptual Framework

Financial statement information over share price:

Capital research market has been analyzed and found that the changes in every single aspect of the company directly impacts over the share price of the company as every change in the company whether is financial or non financial impact over the business of the company and the growth of the company. Such as change in the committee of board of directors also impact over the share price and perspective of shareholder of the company (McGregor and Street, 2007).

Capital research information:

Capital markets research on every factor and financial and non financial aspect of the company to analyze the worth of the organization and according to that the share price of the company is decided. Capital research considers all the information which directly make an impact over the worth of the business and the perspective of stakeholders (Low, Lacasse and Nadim, 2007).

Unexpected earning:

Sometime capital market researches over the things which could positively affect the organization but does not and due to that information they enhances the worth of the business and thus the shareholders who already has invested in the market get unexpected earning. Sometimes due to other factors like changes in the government, some rules and regulations, the worth of business etc, the shareholders get able to earn some unexpected amount.

Timely disclosure:

Timely disclosure is a concept which depict that every information of organization and economy must be revealed on time so that the real picture could be shown by every party related to organization and nation. This concept depict that each information must be disclosed by the company on time. It helps the stakeholders and capital market researcher to make the best decision about the company (Lee, 006).

Insider trading:

Insider trading is a process of selling or buying the stock of a public limited company by individuals with contact to non public information about organization. It could be legal as well as illegal. In this technique, people who are aware about the future changes make a contract of buying or selling the shares for their own benefit without considering the other’s losses or profit.

BIG Bath:

It is an accounting technique of earnings management technique in which only one time charge is applied to reduce the worth of an asset which carries lower expense in near future. This technique depict that when earnings are impacting positively in future by big bath than the stock price could be recover timely.

Qantas and BHP:

Qantas and BHP companies has been analyzed and found that these companies are also taking a concern of big bath to manage the expenses and enhance the earnings o the organization. It has been fund that both of these companies are reducing the expense through bug bath so that the stock price amount could be recovered (Lee, 2006).

Thus it could be concluded that capital market research plays an essential role in enhancing the worth of stock price of an organization.

Introduction:

This question depict about the corporate social responsibility. Corporate social responsibility of an organization, competitive advantages of it, theory of corporate social responsibility etc has been analyzed in this question. Global report initiative has also been studied to make CSR concept clearer.

Challenges Faced while Measuring Fair Value

Corporate social responsibility:

Corporate social responsibility is an initiative of companies to take the responsibility of environmental affect due to operations of the company. This policy is sued by every organization to attract the customers and accomplish their duties.

Advantages:

Corporate social responsibility is a competitive advantage for an organization as it makes the organization different from other competitive companies. If CSR policies of a company are better than other firms in the market, than definitely customers would be attracted towards that company and same would happen with investors (Laux and Leuz, 2009). They will invest more amount in the company.

Theory of CSR:

Corporate social responsibility theories are implemented to make it easy for an organization to adopt the CSR strategy and it also help the firm and the managers of firm to understand the role of CSR in real life. CSR depict that an organization is liable for all the levels of organization. It seeks the sustainability in 3 bottom lines in terms of economic, social and environmental realms (Hines, 2005). Mainly there are three theories of CSR i.e. social, economical and environmental. It depict that an organization must prepare its CSR according to these policies so that a competitive CSR could be made.

Global report initiative case study has been studied and found that it allows the organizations to communicate and understand the business impact on critical sustainability such as human rights, corruption and others. It helps the company to make the perfect strategy for CSR so that company could be more competitive.

Conclusion:

Through this report it could be concluded that corporate social responsibility is essential for every organization to be more competitive in the market and achieve the objective of the company with sustainability. CSR helps the organization to attract more investors and also assist in improving the sales of the company.

References: 

Hines, R.D., 2005. Financial accounting knowledge, conceptual framework projects and the social construction of the accounting profession. Accounting, Auditing & Accountability Journal, 2(2).

Journal of Environmental Accounting and Management.Journal of Environmental Accounting and Management, 3(1), 77-85.

Laux, C. and Leuz, C., 2009. The crisis of fair-value accounting: Making sense of the recent debate. Accounting, organizations and society, 34(6), pp.826-834.

Lee, T.A., 2006. The FASB and accounting for economic reality. Accounting and the Public Interest, 6(1), pp.1-21.

Lee, T.A., 2006. The FASB and accounting for economic reality. Accounting and the Public Interest, 6(1), pp.1-21.

Low, B.K., Lacasse, S. and Nadim, F., 2007. Slope reliability analysis accounting for spatial variation. Georisk, 1(4), pp.177-189.

McGregor, W. and Street, D.L., 2007. IASB and FASB face challenges in pursuit of joint conceptual framework. Journal of International Financial Management & Accounting, 18(1), pp.39-51.

Moser, S. C., and Ekstrom, J. A., 2010. A framework to diagnose barriers to climate change adaptation. Proceedings of the National Academy of Sciences, 107(51), 22026-22031.

Moser, S.C. and Ekstrom, J.A., 2010. A framework to diagnose barriers to climate change adaptation. Proceedings of the National Academy of Sciences, 107(51), pp.22026-22031.

Ross, S.A., Westerfield, R. and Jordan, B.D., 2008. Fundamentals of corporate finance. Tata McGraw-Hill Education.

Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2001. Accounting theory and analysis. Chapel Hill: University of North Carolina.

Whittington, G., 2008 (B). Fair value and the IASB/FASB conceptual framework project: an alternative view. Abacus, 44(2), pp.139-168.

Whittington, G., 2008. Fair value and the IASB/FASB conceptual framework project: an alternative view. Abacus, 44(2), pp.139-168.