英语论文网

According to study carried out in New Zealand, current cost accounts (that are based on fair value accounting) were found to be useful for investor decision making because they are not only relevant but are thought to be more reliable than their historical cost counterparts. The study was carried out to test the assertion of New Zealand company directors that current cost accounts were not useful for decision making by investors (Duncan & Moores, 1988). Therefore, fair value accounting plays an important role in providing users of financial reports with relevant, comparable and reliable information to make better economic decisions for allocating their scarce resources.

Moreover, fair value accounting does have its merits from the decision usefulness perspective but its effectiveness depends on the type of assets that are being measured. Empirical research shows that fair value gives better results in terms of decision usefulness if it is measuring financial assets as against the non-financial assets (Hitz, 2007).

Furthermore, evidence from the empirical research suggests that fair value accounting does provide relevant and useful information to investors but the level of usefulness is affected by the measurement error and who made the estimates – management or an independent valuers (Landsman, 2007).

In conclusion, fair value accounting does provide useful and relevant information to the users of financial reports as long as the numbers faithfully represent the true picture of a company’s financial affairs.

Fair value measurements have not played any part in the creation of global financial crisis. However, they might have played a part in exacerbating it. But this should definitely not bring an end to the fair value as a measurement tool. GFC was created due to the bad practices of mainly US banking corporations as a result of issuing too many subprime mortgages and selling them on in the form of derivatives. When these derivatives instruments failed to sell in the open market as a result of GFC, the banks and other holders of these instruments had to categories as Level 2 or Level 3 assets as per the guidelines of SFAS 157. As a result of marking to market, companies had to substantially write down these assets below their true values. This further contributed to and amplified the crisis (Pozen, 2009).

As discussed in PART A, the problem does not lay with fair value itself but the preparers of financial reports who misuse it. As Benston (2006) notes; “Of course, over-optimistic, opportunistic, and dishonest managers have misused historical-cost-based accounting to overstate revenue and assets and understate liabilities and expenses. Fair-value numbers derived from company created present value models and other necessarily not readily verified estimates provide such people with additional opportunities to misinform and mislead investors and other users of financial statements. The Enron example provides some evidence that this concern may not be misplaced or overstated”.

Fair value provides increasingly relevant information to users of financial reports where historical cost fails in an ever changing world. One本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。