...markets for the instruments were active or inactive and whether there was a significant decease in the volume and level of activity for the instruments. b. The valuation technique used by FFC c. The classification in the fair value hierarchy for each input into the fair value measurement and how these classifications affects classification in the fair value hierarchy of the entire instrument. We will answer these questions by each instrument separately: First, Collateralized Debt Obligation (CDO) Before September30th, 2010, FFC was in an active market, and it determined the fair value of the CDO by using a market-based valuation technique that relies on inputs such as quotes prices for similar CDO securities and requires only insignificant adjustments. After that, there was a significant decrease in the volume and level of activities and the CDO’s market was not active. Besides, significant adjustments are required to determine fair value as of the measurement date given the lack of recent and relevant transactions. The valuation techniques FFC used for CDO is income approach, because this way could maximize the use of relevant observable input and minimize the use of unobservable inputs. There are two factors FFC mainly considered in the fair value measurement. Frist, FFC considered the implied rate of return on September 30, 2010, which is the last date of active market for CDO. This is the Level 1 input. According to ASC820-10-35-40, Level 1 inputs are quoted market...
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...Project Summary Background The objective of this project is to provide guidance to entities on how they should measure the fair value of assets and liabilities when required by other Standards. This project will not change when fair value measurement is required by IFRSs. Discussion at the September 2005 IASB Meeting At the September 2005 meeting, the IASB added the Fair Value Measurements topic to its agenda. The aim of the project is to provide guidance to entities on how they should measure the fair value of assets and liabilities when required by other Standards. This project will not change when fair value measurement is required by IFRSs. Discussion at the November 2005 IASB Meeting The staff conducted an education session on the FASB's working draft of a final Statement on Fair Value Measurements. In addition, the staff reviewed the scope of FASB's Fair Value Measurements project as it relates to IFRSs and the issues and questions to be addressed in preparing an IASB Exposure Draft and related Invitation to Comment. No decisions were made. At a previous meeting, the Board decided to issue the FASB's final Statement on Fair Value Measurements as an IASB Exposure Draft with an Invitation to Comment. The appendices in the FASB document dealing with consequential amendments and references to US GAAP pronouncements will be replaced with proposed consequential amendments and references to IFRSs. The Board further decided that there should be limited changes to the FASB's...
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...changes in asset and liability values over time. The International Accounting Standards Board (IASB) defines fair value as "... an amount at which an asset could be exchanged between knowledgeable and willing parties in an arms length transaction". Under the fair value measurement approach, assets and liabilities are re-measured periodically to reflect changes in their value, with the resulting change impacting either net income or other comprehensive income for the period. The result is a balance sheet that better reflects the current value of assets and liabilities. The cost is greater volatility in periodic reported performance caused by changes in fair value. The notion of fair value accounting is intuitive when applied to quoted investments such as equities, bonds, commodities, etc. that are carried in an entity’s balance sheet at their market value. This form of fair value accounting is often termed mark-to-market accounting. However, while market prices are one aspect of fair value measurement, the term is increasingly being used to describe measurement by other means. For example, accountants often arrive at an estimate of fair value for non-quoted investments based on a model (e.g., a share option valued by applying a specialist option valuation model) or specialist opinion. Such applications of fair value measurement are referred to as mark-to-model accounting. The IASB has followed US standard-setters in dealing with the problem of fair values that do not result from market...
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...IFRS 13 Fair value measurement IFRS 13 Fair value values 21st century real estate measurement Implications for the real estate 21st century real estate values and construction industry Implications for the real estate and construction industries Contents 1. Introduction 2. Principal impacts of the new standard 3. The definition of fair value 4. The concept of ‘highest and best use’ 4.1 Assessment 4.2 Valuing the highest and best use — alternative use and asset modifications 4.3 Highest and best use and impairment testing 5. The valuation premise for property interests 6. Assessing whether an appraisal complies with IFRS 13 7. Appropriate valuation techniques 8. Applying the fair value hierarchy to real estate appraisals 9. Expanded disclosure requirements 10. Final thoughts 2 2 3 3 3 4 4 5 5 6 7 8 9 IFRS 13 Fair value measurement — 21st century real estate values Implications for the real estate and construction industries 1 1. Introduction IFRS 13 Fair Value Measurement has been recently released by the International Accounting Standard Board (IASB). 2. Principal impacts of the new standard For real estate entities, the adoption of IFRS 13 could result in significant changes to processes and procedures for determining fair value and providing the required disclosures. While the requirement to determine fair value by reference to market participants is not new, the definition of fair value in IFRS 13 differs from that proposed by International Valuation Standards (IVS)...
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...Taylor Company for land and a building with the market price for the land and building at $900,000 in order to expand the Company. Issues: 1. Does a privately-held company transaction need to be held at fair value? 2. How to record the transaction of land and building for shares? Conclusion: 1. According to paragraph #820-10-30-2 and #820-10-50-2F of the FASB Accounting Standards Codification (ASC), Taylor Company does not need to report the transaction at fair value since a nonpublic entity company does not have to sell assets at the prices they paid to acquire them: Building and land $100,000 Company Shares @ $6.00 a share $100,000 2. According to paragraphs #820-10-30-2 and #820-10-50-2F of the FASB ASC the fair value cost does not need to be reported; however, the transaction does need to be reported in the financial statements (Income and Balance sheet). Reasoning/Support: 1. The following paragraph of the FASB ASC provides authoritative guidance for determining Faire Value Measurement. 820-10-30-2 When an asset is acquired or a liability is assumed in an exchange transaction for that asset or liability, the transaction price is the price paid to acquire the asset or received to assume the liability (an entry price). In contrast, the fair value of the asset or liability is the price that would be received to sell the asset or paid to transfer the liability (an exit price). Entities do not necessarily sell assets at the prices paid to acquire them...
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...FAIR VALUE MEASUREMENT: IMPLEMENTATION ISSUES AND CHALLENGES (PART 1) (by Tuam Kwok Choon and Ng Kean Kok) INTRODUCTION Since the promulgation of fair value accounting by the International Accounting Standards Board (IASB), the subject matter has been hotly debated by industry players and professionals of the accounting fraternity the world over. Many problems and pitfalls have been highlighted on the "mark-to-market" premise. For example, David Gwilliam and Richard H.G. Jackson (2008) noted that Enron "was able to 'monetize' physical assets so as to bring them within the remit of mark to market accounting", suggesting misuse of fair value measurement. Fair value is said to be superior to other forms of measurement because it is easily understood by investors and stakeholders. It is also timely, neutral, representationally faithful, reliable, relevant, comparable and consistent. Fair value reporting is deemed to be more transparent and investor-confident. However equally important is that fair value measurement is subject to constraints such as human judgment, the location and condition of the asset/liability being measured, the determination of market, the most advantageous market value as against the entity's perspective, transaction price presumption (exit price verses entry price in different markets), the bid-ask spread of financial instsruments, and transportation cost exclusion, to name a few. Brief definition of fair value: Defined as, “The price that would be received...
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...Assignment 2015 1. The measurement concepts in relation to historical cost and fair value accounting. IASB framework defines that measurement is the process to determine the monetary amount of the financial statements’ elements are to be recognized and carried on the balance sheet and income statements ( IASB Framework 2010). 1.1 Historical cost Historical cost is an accounting method about the original nominal monetary value of an economic item at the time of transaction (IFRS). Under this method, assets and liabilities listed on the balance sheet with the value at their purchase or acquisition, rather than the current market value. According to the historical cost principle, most assets or liabilities are recorded at historical cost on the balance sheet even if there is a significantly change in the value over a period. Hence the balance sheet value of the items may differ from the real value and this value is never adjusted by the changing of market and economy. For example, 10units of one item were purchased for $10 each. The price of this item today is $11 per unit. Therefore the inventory should appear on the balance sheet at $100 and not at $110. 1.2 Fair Value According to IFRS13, fair value is regarded as a scientifically true measurement concept. To be more specific, fair value is a market-based measurement; it is not an entity specific measurement. In other words, fair value is the price that the company will be received to sell assets or paid for transfer...
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...long-lived assets in accordance with ASC 360-10. Applicable Professional Pronouncements ASC 360-10, Property, Plant, and Equipment: Overall (ASC 360-10) ASC 360-10 provides guidance on accounting for property, plant, and equipment, and the related accumulated depreciation on those assets. This Subtopic also includes guidance on the impairment or disposal of long-lived assets. ASC 360-10 notes that long-lived tangible assets include land and land improvements, buildings, machinery and equipment, and furniture and fixtures. ASC 820, Fair Value Measurements and Disclosures (ASC 820) ASC 820, Fair Value Measurements and Disclosures, applies to U.S. GAAP that require or permit fair value measurements or disclosures and provides a single framework for measuring fair value and requires disclosures about fair value measurement. The Topic defines fair value on the basis of an "exit price" notion and uses a "fair value hierarchy," which results in a market-based — rather than entity-specific — measurement. IAS 36, Impairment of Assets (IAS 36) To ensure that assets are carried at no more than their recoverable amount, and to define how recoverable amount is determined. Discussion 1 — Impairment Assessment for a Long-Lived Asset How should Smooth Sailings’ management perform the recoverability test for the cruise ship as of December 31, 2010? In addressing this question, consider: •What assets and liabilities should be included in the “asset group” as...
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...IFRS AT A GLANCE IFRS 13 Fair Value Measurement As at 1 January 2014 IFRS 13 Fair Value Measurement Page 1 of 2 Effective Date Periods beginning on or after 1 January 2013 SCOPE AND SCOPE EXEMPTIONS IFRS 13 applies when another IFRS requires or permits fair value measurements (both initial and subsequent) or disclosures about fair value measurements, except as detailed below: Exemption from both measurement and disclosure requirements: Share-based payment transactions within the scope of IFRS 2 Share-based Payment Leasing transactions within the scope of IAS 17 Leases Measurements that have some similarities to fair value, but are not fair value, such as: - Net realisable value in IAS 2 Inventories - Value-in-use in IAS 36 Impairment of Assets. Exemption from disclosure requirements only: Plan assets measured at fair value in accordance with IAS 19 Employee Benefits Retirement benefit plan investments measured at fair value in accordance with IAS 26 Specific quantitative disclosure requirement: Accounting and Reporting by Retirement Benefit Plans Assets for which recoverable amount is fair value less costs of disposal in accordance with IAS 36. DEFINITION OF FAIR VALUE Fair Value: measurement-date price received to sell and asset, or paid to transfer a liability, in an orderly transaction between market participants. Price The price is determined at measurement date under current market conditions (i.e. an exit price). This is regardless of whether...
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...Fair Value Accounting: The Road to Be Most Travelled By Rock Lefebvre, Elena Simonova and Mihaela Scarlat Fair Value Accounting: The Road to Be Most Travelled By Rock Lefebvre, Elena Simonova and Mihaela Scarlat December 2009 Sponsored by the Certified General Accountants Association of Ontario Introduction ................................................................................................................................ Fair Value Accounting – An Overview....................................................................................... 4 5 Critique of Fair Value Accounting ............................................................................................. 14 Arguments in Support of Fair Value Accounting ....................................................................... 17 Concluding Remarks.................................................................................................................. 20 2 Issue in Focus Executive Summary The use of fair value accounting has gained momentum and has proven to attract a level of attention rarely witnessed in the annals of accounting practice. One of the driving forces is the belief endorsed by some that fair value accounting initiated and aggravated the recent credit crisis. In light of these circumstances, it is considered timely to advance awareness in relation to fair value accounting and to clarify the competing arguments in favour of, and against, the use of...
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...1-4 1. Obtain the relevant authoritative literature on fair value measurements using the FASB’s Codification Research System at the FASB website (www.fasb.org). Identify the Codification topic number that provides guidance on fair value measurements. FASB ASC 820 fair value measurement and disclosures 2. What is the specific citation that lists the disclosures required in the notes to the financial statements for each major category of assets and liabilities measured at fair value? The specific citation that describes the information that the companies must disclose about the use of fair value to measure assets ad liabilities for recurring measurements is FASB ASC 820 10 50 2: fair value measurements and disclosures overall disclosures 3. List the disclosure requirements. The disclosure requirements are: A the fair value measurements at the reporting date B the level within the fair value hierarchy in which the fair value measurements I their entirety fall, segregating fair value measurements using any of the following” 1. Quoted market prices in active markets for identical assets of liabilities (level 1) 2. Significant other observable inputs (level 2) 3. Significant unobservable inputs (level 3) C for fair value measurements using significant unobservable inputs (level 3) a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to any of the following: 1. total gins ad losses for the period (realized...
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...Fair Value Accounting: Understanding the Issues Raised by the Credit Crunch Prepared by Stephen G. Ryan Professor of Accounting and Peat Marwick Faculty Fellow Stern School of Business New York University July 2008 This white paper was commissioned by the Council of Institutional Investors to educate its members, policymakers and the general public about fair value accounting and its potential impact on investors. The views and opinions expressed in the paper are those of Professor Ryan and do not necessarily represent the views or opinions of Council members, board of directors or staff. Contents Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. Background Information Abstracting from the Credit Crunch . . . . . . . . . . . . . . . . . . . . 3 III. FAS 157. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 IV. Potential Criticisms of Fair Value Accounting During the Credit Crunch . . . . . . . . . . . . . . . . . . 10 V. Summary of Reasons Why Some Believe that Fair Value Accounting Benefits Investors. . . . . . 15 VI. Summary of Reasons Why Some Believe that Fair Value Accounting Hurts Investors . . . . . . . . 17 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Executive Summary Fair value accounting is a financial reporting approach...
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...Financial Accounting Standards Board ORIGINAL PRONOUNCEMENTS AS AMENDED Statement of Financial Accounting Standards No. 157 Fair Value Measurements Copyright © 2010 by Financial Accounting Foundation. All rights reserved. Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Foundation. FAS157 Statement of Financial Accounting Standards No. 157 Fair Value Measurements STATUS Issued: September 2006 Effective Date: For financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years Affects: Amends APB 21, paragraphs 13 and 18 Deletes APB 21, footnote 1 Amends APB 28, paragraph 30 Amends APB 29, paragraphs 18 and 20(a) Deletes APB 29, paragraph 25 and footnote 5 Amends FAS 13, paragraph 5(c) Amends FAS 15, paragraphs 13 and 28 Deletes FAS 15, footnotes 2, 5a, and 6 Amends FAS 19, paragraph 47(l)(i) Amends FAS 35, paragraph 11 and footnote 5 Deletes FAS 35, footnote 4a Amends FAS 60, paragraph 19 Deletes FAS 60, footnote 4a Amends FAS 63, paragraphs 4, 8, and 38 through 40 Amends FAS 65, paragraphs 4, 6, 9, 10, 12, and 29 Amends FAS 67, paragraphs 8 and 28 Deletes FAS 67, footnote 6 Amends FAS 87, paragraphs 49 and 264 and footnote 12 Deletes FAS 87, footnote...
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...prospective criticism of Fair Value Measurement 1. Analysis of nature of Fair Value Measurement The implement basis of SFAS157 is in an efficient market. Its hierarchy of fair value measurement confirms the priority of market price for the same or similar position. But under the credit crisis, entity will expect to reverse the unrealized losses partially at present or totally in the future. Based on this assumption, some entities preferred to report amortized costs or level 3 mark-to-model fair values, arguing that level 2 mark-to–market fair values will raise larger unrealized losses. [8] In an illiquidity market, the impairment of assets caused potential risk of system and overreaction of investors. The substantial decreasing values enter into the unrealized losses, which further force investors sell their assets for financing in order to mask financial statements or to accord with the investment policy. The consequence is that counterparties are unwilling to transact with those whose assets are continually impaired. In this situation, investment having high leverage will undertake the crisis of liquidity. The bankruptcy of these investment banks may cause the liquidation of hedge fund or other issuing bond, as well as the investment loss of their counterparties. When crisis extends, so called fair value is no longer “fair”. [9] In the prosperous economic market, the carry out of fair value measurement follows the bubble price, relative to the basic value of assets and liability...
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...Market Hypothesis 7 4.0 Discussion and findings 8 5.0 Conclusion 10 Reference 12 Relationship between Fair Value Measurements with Investor Confidence during Global Financial Crisis Abstract As investor, the needs of information which can reflect accurate financial information matching with current market condition is essential. Using fair value methods and measurement for asset valuation is one of the best accounting methods which can reflect current market condition accurately. But FVA cannot be separated from the critique especially when global financial crisis hit the world. Critique said FVA decrease investor confidence to invest in market which made more illiquid market during the time. In this paper, our aim is to find the relationship between fair value accounting, method, and measurement with investor confidence. We have been searched the data from previous journal that has been worked before to prove our assumption which are Fair value has decrease investor confidence and investor rely on information which is provided only by fair value measurement. 1.0 Introduction and Motivation There have been many studies on the role of FVA to global financial crisis (GFC) which may result in different opinion and open debate in the future. Most of the past research papers consist of the focus of this paper which is to find in depth more on how the fair value (FV) measurement may or may not affect recent GFC and how it affecting investor confidence. These past studies...
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