Fair Value Accounting Essay Example | Topics and Well Written Essays - 1500 words

Fair Value Accounting - Essay Example(Parshall, 2009)This study is pay off out to discuss fair value accounting and more specifically determine its role in the credit crisis that rocked the world in 2008. It will establish to justify the statement that, Fair value accounting only works in efficient, active and liquid markets. In order to produce information which is relevant and reliable, fair value focuses on market prices.Due to the financial crisis, fair-value approach for accounting has triggered major debates globally. Among the debaters are the European Commission, USA Congress as wellhead as accounting and banking regulators in the globe. Cynics have it that the financial crisis impacting the whole world in the recent past has been mostly caused by the effects of fair-value accounting. The study is expiry to determine whether fair value accounting is only applicable in active, efficient and liquid markets. Various arguments will be considered while trying to retract the b efitting approach to the issue.The Standards of accounting reports, IFRS and US GAAP, aid in deriving from market prices in various circumstances. However, it is not very clear whether these standards are the filiation of the predicaments. The allowing of the managements of organisations to be flexible when it comes to dealing with future value accounting problems leads to the manipulation during such times as those of financial crisis. From the perspective thus the market conditions whitethorn impact on fair value accounting.However, according to Laux and Leuz, future value accounting is an approach to the measurement of liabilities and assets in a given companys balance sheet. FASs number 157 definition is that fair value accounting is the price that would be received to sell an asset or paid to bump off a liability in an orderly transaction between market participants at the measurement date. Under IFRS fair value has been defined as the heart and soul at which a certain asset and liability could be