Essay: Fair Value Accounting Model

Sample Essay

The Fair Value Accounting model has been favoured and opposed by a lot of people giving various reasons of failure or success. People favouring the FVA are of the view that it provides appropriate information about assets to users of financial statements whereas the people who oppose this model are of the view that it only adds to the ongoing global financial crisis. The groups opposing the model have been trying extensively to get the guidelines amended in the prescribed standard for Fair value accounting.

As we have seen from the relationship of Fair Value accounting to the decision usefulness, positive accounting and agency theories it helps the general public and the investors at large but there are complications present for the management of companies and specially banks. The first complication is the accurate estimation of the fair values with respect to the financial instruments held to maturity, held for trading and assets available for sale. The second problem has been the significant write down in the values of assets on the financial statements of the company which increases the losses of these companies and affects the income statement considerably and the volatility of the market.

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