The executive summary section will give a summary of the benefits and costs of the standard which will determine whether there is a balance between the two. The report will also discuss the relevant theories in relation to the standard and the entities which are more likely to be affected by the standard. It is evident that fair value is affected by the type of industry and thus may concern will be the most affected entities. Part F of the report evaluates the standard by highlighting the advantages and disadvantages of the standard. Conclusions and recommendations reached are also based on these criterions which are required in making economic decisions. ). The conclusion is based on the discussions of technical matters such as comparability, relevance, reliability and understandability. These are the four main criterions which have been designed for application in determining whether the standard meets the expectations of IASB and the users generally. Executive summary IFRS 13 defines fair value and provides a framework on how to determine fair value for financial reporting purposes. The definition of fair value is not different from the one contained in previous IFRS. IFRS 13 defines fair value as the amount which would have been received when an asset is sold or paid if a liability is transferred between parties in an arm’s length transaction (Rankin et al 2012). The application of IFRS 13 requires significant judgment and use of core concepts for fair value measurements. It provides a common objective when it permits or requires a measurement of fair value irrespective of the asset or liability type the entity holds or being measured. The benefit of adopting IFRS 13 is that it satisfies the criteria of comparability, relevance, reliability and understandability (Rankin et al 2012). IFRS 13 is intended to make users understand the measurements of fair value and enhance consistency in the application of fair value measuring in the financial statements. By having a single framework, conflicts are eliminated since the objectives of fair value measurements remain the same regardless of the reasons behind fair value measurement or the information available to support the measurement. Fair value considers the prevailing market conditions existing at a certain measurement date and this conveys the current value of an asset or liability. This brings out the aspect of relevance since the potential future value of the asset or liability is not considered. In addition, the management’s intention to dispose an asset or transfer a liability at the measurement date is not considered. Instead, the standard represents a market-based measurement that reflects a hypothetical transaction among market participants at the measurement date. The standard also requires that inputs used in measuring fair value be prioritized based on reliability. The nature of these inputs whether observable or non-observable, does not adversely affect the intentions of the standard which is an advantage. This means that the requirements of an exit price are not relaxed because a current market condition prevails at the measurement date. Apart from this four criteria’s, IFRS 13 does not lead to incremental costs for users in incorporating the new requirements. The standard requires more extensive disclosures and thus users have to perform a detailed analysis which requires a lot of time. Background of
Introduction The aim of this report is to evaluate and issue an opinion to the International Accounting Standards Board (IASB) on whether IFRS 13 on Fair value measurement which was drafted in May 2011. The standard sets out a single framework for fair value measurement and guidance on how to measure assets and liabilities, whether financial or non-financial…
The achievements are also elaborated along with the framework which has made them successful. The report elaborates the concept of fair value accounting system and the arguments for or against the decision of inclusion of the fair value concept in the financial reporting.
Since the US GAAPs are also closely linked to IFRS, FASB wants to bring some change in those GAAPS. To move towards fair value accounting, it published a statement on which it defined fair value accounting and provided some guidelines regarding it it also issued a standard in 2007 giving companies an alternative to value assets and liabilities at fair value .
The IASC (International Accounting Standards Committee) Foundation is a private, not-for-profit organization that oversees the activities of IASB. As stated above, the main objective of IASC Foundation is to oversee development and refinement of IFRS that can be applied globally.
Such differences between accounting systems make it difficult to compare the relative worth of companies operating in different countries. The very credibility of financial statements becomes suspect as a result of similar transactions being accounted for differently in various parts of the world.
The IASC was set up in 1973 by the professional accounting bodies of nine countries with two principal objectives including: 1) the formulation and publication of accounting standards to be observed in financial statements and to promote their worldwide acceptance and; 2) To work generally for the improvement and harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements.
Despite the statement of principle assisting in the preparation of the accounting standards,they are also used by preparers and auditors who are faced with new or emerging accounting issues in order to assist them to carry out initial analysis of the issue involved
The company's management would like to use the balance sheet and income statement in order to determine if the company has been doing well and in accordance with benchmarks and budgets that was approved for implementation.
Company's management also wants to determine how it fares with their competitors located both within its country borders and also companies located outside its borders.
The Accounting standards board (ASB), has already declared its intention of replacing UK GAAP with IAS's and making them compulsory for all UK companies no matter what size, thus the benefits and costs of these standards are of high importance to the UK.