Template for Bachelor thesis in International Business
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Fair Value Accounting US GAAP VS IFRS
Problem StatementFair value accounting is a novel approach governed by IFRS 13- Fair Value Measurements, according to which the balance sheet assets are marked-to-market to provide investors with the fair value of the stock (Damodaran). Fair value accounting is used to report the fair value of assets and liabilities on the balance sheet. Fair value accounting is applied to PP&E, Investment properties, and specific financial instruments. The historical cost method records the assets at a cost which are later depreciated for a specified life through uniform depreciation. Many researchers and accountants (Walton, 2013) believed that Fair value accounting is superior to historical cost accounting due to its superior information regarding the present or current value of the assets. Many researchers (Herring, 2013; Schildbach, 2011) believed that Fair value accounting leads to increased confusion. The reasons for broader acceptance of Fair value accounting included removing the gap between accounting value and the company's actual value – thus reducing uncertainty regarding the firm's true value and providing relevant and timely information to investors for the firm's risk assessment (Damodaran, 2010). Transitioning from Historical cost accounting has its benefits, but it has also created some problems for the appraisers and investors. These problems include using relative valuation technique for valuing assets under the market approach (Schildbach, 2011), impairment of intangible assets, and revaluations of assets, leading to Fair Value Gains /Losses on the income statement (Lhaopadchan, 2010). According to (McInnis, Yu and Yust, 2018), many have started voicing against adopting some Fair value accounting standards due to confusion and complexity in revaluations and impairment charges. Another future implication for Fair value accounting is the performance of these standards under the COVID-19 pandemic. Duff & Phelps 2have already demanded to halt Fair value accounting due to more significant uncertainty. Therefore, this thesis tries to explain the underlying factor for accepting Fair value accounting, the current problems, and future implications and challenges. Download 383.21 Kb. Share with your friends:
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