Some stated that they employed independent institutions to measure the fair values
, whereas others asserted that correctly estimating the fair value
of assets and liabilities is management's ultimate responsibility.
From an IFRS perspective, IFRS 13 provides significant fair value
guidance as, for the first time there is a precise definition of fair value
and a single source of fair value
measurement and disclosure requirements (U.
In connection with the recent financial and subsequent economic crisis, many opinions appeared blaming fair value
measurements in financial statements to be one or even the main driver of the crisis.
While the changes made to fair value
accounting may seem like yesterday's news, it is still important to maintain a strong control environment and robust documentation over the valuation of financial instruments in order to ensure reliable and transparent accounting.
Goodwill impairment tests are performed either as part of the annual requirement under ASC 350 or upon the occurrence of what is known as a "triggering event"--a change in circumstances for the reporting unit that could create a situation where the fair value
of the unit is below its carrying value.
The authors indicate that the latitude afforded entities to assign fair values
to assets and liabilities means that the most important "principles" in mark-to-market accounting are the ethical principles of preparers and auditors who estimate and attest to the fair values
reported in financial statements.
Few accounting issues have generated as much controversy as the use of fair value
measurements, which are in some cases required and in other cases permitted under U.
Although international regulating bodies aim to extend the practice of using fair value
for the valuation of all the elements of the balance sheet, regardless of the companies' field of activity, valuation systems based on fair value
are still a rather controversial issue.
FASB has raised the bar for disclosure required when the fair value
option is in play so that investors, analysts and other financial statement users will be able to clearly understand the extent to which the option is used and how changes in fair values
are reflected in the financial statements.
Statement 157 also requires that additional detailed disclosures be made about assumptions used in measuring fair values
, which provides additional transparency to investors and other users of financial statements.
For example, changes in fair values
of securities portfolios can arise from movements in interest rates, foreign-currency rates, and credit quality, as well as purchases and sales from the portfolio.
In contrast, Lipe (1998) and Maines and McDaniel (2000) argue that the judgments of analysts who specialize in firms for which fair values
are central to core operations will routinely evaluate fair-value information wherever it is disclosed.