With respect to "fair-value" how do we determine?
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The Financial Accounting Standards Board (FASB) plays an important role in establishing accounting standards. Here is an interesting article by Norris (2008) that describes how the FASB and the Securities Exchange Commission (SEC) have provided additional guidance on interpreting an accounting standard. According to Norris, in September 2008, FASB and the SEC provided this on its fair-value rule, FASB Statement 157.
Norris writes the fair-value rule states that asset values should be based on market values, when available. The standard uses three ranked methods to value assets: first use market value (if there is an active market for a security), then use a price based on similar securities, and finally use the company's "model of value" if the first two methods are unavailable.
Norris goes on to say that this rule has been challenged by bankers who argued they were being forced to use abnormally low prices to value assets. FASB and the SEC state that fair value should not be derived from "disorderly transactions," such as "distressed or forced liquidation sales."
With respect to "fair-value" how do we determine that in a turbulent market? Please share your thoughts!
Reference:
? Financial Accounting Standards Board. FASB Statement 157. Fair Market Measurements. [On-line] Available: http://www.fasb.org/st/summary/stsum157.shtml
? Norris, F. (2008, October 1). S.E.C. Move May Relax Asset Rule. The New York Times. [On-line] p. C1. Available: http://www.nytimes.com/2008/10/01/business/01audit.html
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The response addresses the queries posted in 495 Words, APA References
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The response addresses the queries posted in 495 Words, APA References
Fair Value Rule
The concept of 'Fair Value' draws heavily on the value concepts i.e. book value, market value and intrinsic value. Thus, it is the regarded as an average of book value, market value and intrinsic value. From the conservative point of view, it will be useful to know the realizable value, market value, liquidation value, etc. In the turbulent market, fair value rule is useful to know business valuation from the different perspective. For example: the book value may be very relevant for accounting/tax purposes, price value may be useful in determining share exchange ratio and a company's model of value or liquidation value may provide an insight into the maximum loss, if the assets are to be finished.
In the fair value measurement, adopting fair value rule or ...
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