What is the real value hierarchy?

The real value hierarchy is a preferential system used in asset and obligations. This creates a standardized method for determining values ​​for accounting purposes to reduce the risk of confusion and create uniform accounting procedures. One example of such a hierarchy was published in 2006 by the Council for Financial Accounting Standards (FASB), which issues regular statements to update the generally accepted accounting principles (GAAP). These recommendations are consistently applied to increase the reliability and accuracy of their messages. A classic example can be seen when the company wants to estimate the value of the stock it holds. Accountants can check quotations in the open market to find out how much this stock costs. This is the closest and direct way to determine the real value.

Assets are not essential or may not be traded in the same markets. The next step of the real value hierarchy involves observing similar assets and markets to come up with a reasonable value estimate. It doesn't have to be exactlyThe same, but should be similar. Example can be seen in the valuation of housing, where of course the same house on the same land cannot be sold twice, but a similar house on a similar land can be sold and its selling price would provide information about the value of the house in question.

Finally, the lower part of the real value hierarchy includes assets with undetectable values. They or their markets are too unique for observing similar market activities to provide information about their value. In this case, the accountant must make educated estimates based on available information. They can realize that the asset is in the category of the third hierarchy of real valid observers RT to the fact that the value may not be accurate.

This method of preference evaluated can be valuable both for accountants who want to be consistent in their reporting and for observers who read their news. People who look at the real h estimatesOutnuts, they want as much information as possible about how the value was determined. This can help them decide whether the information is accurate. It can also play a role in reflection on whether and how to dispose of assets. For example, a company that suits a large stock portfolio could create a ripple on the market.