Fair Value Accounting

FAIR VALUE ACCOUNTING

Table of Contents

Page

1. What is Fair Value Accounting……………………………….. 3

2. Summary of Statement #157………………………………….. 5

3. Advantages and Disadvantages of Fair Value Accounting. 10

4. How is Fair Value Accounting Used Today………………….. 11

5. Graph of Assets at Fair Value………………………………….. 13

6. Historical Accounting vs. Fair Value Accounting………….. 14

7. What is Historical Accounting………………………………….. 14

8. Advantages and Disadvantages of Historical Accounting… 15

9. Pros and Cons of Fair Value and Historical Accounting….. 15

10. Survey Results on Current Fair Value Accounting………. 16

11. Level Asset 3 Graph………………………………………… 19

12. Conclusion………………………………………………………. 20

13. Bibliography…………………………………………………… 22

What is Fair Value Accounting?

What we must first determine is what the actual definition of Fair Value Accounting is. There are a few different ways the definition is written and we will go into a few of them.

The first thing we must state is under General Accepted Accounting Principles, known as GAAP. The fair value of an asset is the amount at the time that it could be bought or sold in a current sale between parties that are willing but liquidation is not included. Also under GAAP, the fair value of a liability is the amount at which the liability could be incurred or settled in a recent sale between parties who are willing but once again liquidation is not included. As GAAP states, if a quoted market price is available in an active market this should be used for fair value and should be used at that time for the basis of the measurement. GAAP also states that if no market price is available then an estimate of fair value should be used but with the best possible information available at the time and the situation. This is why sometimes it is difficult to get fair value due to the fact of no market price.

A second way to explain Fair Value...