What Is Fair Value Accounting?
Fair value accounting, also called market value accounting, refers to an accounting model that uses market value or the present value of future cash flows as the main measurement attribute of assets and liabilities. With the development of modern transportation and communication technology, the mutually divided markets in the industrial society are moving towards world integration, and the traditional historical cost measurement attribute based on transaction prices is no longer the only reliable source of information. Fair value accounting information is highly relevant. It will become more and more important in the new century and future accounting measurement.
Fair value accounting
- Since the 1980s, fair value has been used more and more widely.
- Fair value
- Fair value means that in a fair transaction, parties familiar with the situation voluntarily carry out
- Fair value accounting aims to
- The traditional accounting model is an accounting model based on accrual basis and historical cost as the measurement principle. Its distinguishing features are: a nominal monetary unit as a unified accounting unit of measurement; the occurrence of a transaction as a record of assets, liabilities, and owner's equity Yi
- Fair value accounting
- However, in the era of knowledge economy, with the expansion of financial accounting confirmation scope, the "pure" historical cost model can no longer objectively and fairly reflect the value of the measured object. In contrast, historical cost accounting based on cost and fair value accounting based on value are more logical; from the perspective of usefulness, it can give investors and users more meaningful information. The application of fair value measurement to human resources accounting and environmental accounting can also obtain more relevant information than the historical cost method, which is more helpful for information users to make decisions. With the rise of the knowledge economy and society, social competition is becoming increasingly fierce, and risks and uncertainties are increasing. The emergence of a large number of intangible assets, derivative financial instruments and other soft assets will inevitably provide for the use of fair value, especially the present value. Larger stage, and the introduction of FASB Concept Announcement also provides systematic theoretical guidance and basis for countries to use fair value in the formulation of accounting standards. These will inevitably affect the orientation of China's future accounting standards.
- In addition, with the deepening of the reform of state-owned enterprises in China, the continuous diversification of property rights, the increasingly perfecting of the capital market, and the gradual transformation of accounting objectives into the direction of decision-making usefulness, these will provide conditions for China to gradually implement and use fair value accounting. By the 21st century, the role of the financial industry in the Western national economy will further increase, and it may even surpass the secondary industry. The development of the financial industry and the innovation of financial instruments and derivative financial instruments have created an objective environment for fair value accounting to play a leading role in the next century. With the rapid development of computer technology, and with the improvement of financial management research on financial instrument measurement models, fair value accounting is technically feasible. Of course, under the current circumstances in our country, it may be too urgent to implement fair value accounting immediately and we must wait for the opportunity, but the development and application of fair value accounting is a general trend.