Advance Financial report Essay Example | Topics and Well Written Essays - 2250 words

Advance Financial report - Essay Example The credit crunch in 2008 and 2009 saw the fall of big financial institutions including Lehman brothers, AIG, Bear Stearns, and the others. The US government and other governments in Europe tried to provide bail-out funds to save companies because of the economic consequences of the problem but the crisis was unstoppable (Ryan, 2008). In an effort to prevent the occurrence of similar problem in the future, the issue on the influence or effect of the use fair value accounting in the preparation of financial statements becomes a subject of investigation and debate. Fair value is close related to market price as SFAS 157 defined as â€Å"the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date†. (FASB, 2006). First, compared with other measurements, FVA permits or requires companies to report in the financial statements more accurate, timely and comparable information on amounts, regardless of the condition in the economy (Ryan, 2009). This means that fair value is more relevant than historical cost when it comes to understanding the assets and liabilities of business organizations. It is believed that fair value does reflect the underlying fundamentals most specifically the risk of the asset. In other words the quality of information is enhanced in giving relevancy more importance than reliability for decision makers (Scott, 2010, citing Plantin, Sapra & Song Shin, 2008). The use of fair value in the financial statements would come closer to valuation conducted by investors or finance people for decision making purposes (Brigham and Houston, 2002). Second, the reported amounts under FVA would more updated on a regular and on-going basis (Ryan, 2009) allowing decision makers to know that the company would still an on-going concern. On the premise that accounting information are meant to inform the decision makers, then the purpose of