Advance Financial Accounting for Pivotal Role - myassignmenthelp

Question: Discuss about theAdvance Financial Accounting for Pivotal Role. Answer: Introduction In order to derive the picture of overall financial performance of a company at certain point of time, the financial report plays pivotal role. The existence of financial report further depends on the process of financial accounting. One of the accounting techniques involves assessing asset and liabilities at current market price termed as fair value measurement. This is essential to be followed in order to bring forth authentic financial report of a company. However International finance reporting Standard 13 introduces a revised version of fair value accounting (Dvo?kov 2013). This report aims to discuss the concept of new fair value accounting process along with highlighting the underlying assumptions of the IFRS 13 Fair Value Measurement. Concept IFRS 13 is the revised form of the guideline for setting framework of fair value measurement with required disclosure. As per the definition, fair value of asset or liability refers to certain price operative in the market at the day measurement is undertaken. This price is the amount seller of an asset receives or makes payment while transferring any liabilities between market agents. The assumption inherently integrated when conducting the fair value measurement is the assumption about risk. The motive behind IFRS 13 is to make fair value accounting more consistent and compatible. IFRS 13 makes fair value measurements more consistent and comparable through the execution following a hierarchy of fair value (Henderson et al. 2015). In the hierarchy categorisation of the inputs used in valuation techniques are done. The inputs are organised in three levels. Prices quoted in the current markets of assets or liabilities, which are identical gets, the highest priority in the hierarchy. Inputs, which are unobservable receives the lowest position in the hierarchy list of priority. The inputs lying in the level one are active market prices for the asses and/or liabilities, which are identical. It is accessible to agents or entities of market on the date measurement are conducted. Level two includes the inputs in quoted price different than in level one, which are observed directly or indirectly in the market for the asset and liabilities (He, Wong and Young 2012). Inputs, which are unobseravle for the asset and liability, are included in the level three inputs. The objective of this measurement lies in the very definition of it that is to undertake a transaction between market participants that involves selling or transferring liability at the date of measurement prevailing under current condition of the market. Such phenomenon would require determination of following entities: The specific asset or liability is treated as the subject of the measurement The appropriate premise in order to undertake the valuation in measurement The primary market of the asset or liability The appropriate methods of valuation technique applied in the measurement Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at te. Assumptions The assumptions underlying the guidance of IFRS 13 are discussed in the following: When pricing an asset or liability is undertaken, it is the entity or market participants take the characteristics of them into account at the measurement date. The condition of the asset, the location of it and restrictions implied on the sell and purchase are major concern here. A transaction is assumed to take place between entities participating in the current market conditions. The transaction under such measurement takes place in the primary market of the liability or asset. While non-existence of such principal markets, the transaction takes place in the markets are profitable for the assets. Fair value measurement undertaken to make valuation of non-financial assets involves the best and maximum use if it. The transfer of the financial or non-financial liability, equity instruments and are made to participants in the market at the measurement date without being subject to any cancellation, settlement or extinguishment of the measurement date. The fair value of liability creates reflection of the non-performance risk and credit risk of entity subject to the risk of non-performance that the asset or liability has intrinsically. Valuation techniques Application of proper valuation techniques are of crucial importance in order to successfully run a fair value measurement. Based on the available and sufficient data, observed inputs are maximised and unobserved inputs use is minimized under such measurement techniques. Some of the widely used techniques are: Market Approach: The information about price and other relevant sources are used in these techniques, which are generated by the market transactions (Horngren et al. 2012). The assets or liabilities might be similar or comparable or even a group of assets and liabilities. Income Approach: In this approach, the cash flows regarding income or expenses incurred in future are transferred into single current amount following discount method. This generally makes reflection of the current market expectation about the cost and gains in the future. Coat Approach: This approach reflects the cost incurred at current market condition to replace the service capability of as asset. It mostly includes the replacement cost at current market price(Card 2016). Based on the requirement single to multiple techniques are applied to conduct fair value measurement. Conclusion From the above discussion, it can be briefed that the revised fair value measurement operating under IFRS 13 includes more efficiency to be followed now on in order to price and make transactions more transparent and effective. References Card, C., 2016. Fair Value Accounting. Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets pass the market test?.Review of Accounting Studies,18(3), pp.734-775. Dvo?kov, D.A.N.A., 2013. Developments in fair value measurement: some IFRS 13 view.Recent researches in applied economics, pp.151-156. He, X., Wong, T.J. and Young, D., 2012. Challenges for implementation of fair value accounting in emerging markets: Evidence from China.Contemporary Accounting Research,29(2), pp.538-562. Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015.Issues in financial accounting. Pearson Higher Education AU. Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D. and Tan, R., 2012.Financial accounting. Pearson Higher Education AU.