Fair Value Accounting for Financial Instruments

The process of Fair Value Accounting is followed almost everywhere in the world, including USA, UK, Australia and European Union. In USA, Financial Accounting Standards Board or FASB supervises the Fair Value Accounting for Financial Instruments.
Fair Value Accounting for Financial Instruments is prevalent in most of the countries of the world. But, the accounting standards vary from country to country. USA, UK, European Union and Australia all have set their specific accounting standard for Fair Value Accounting for Financial Instruments.

They have issued these accounting standards, in order to recognize the amounts of Balance Sheet at fair value. They were also guided by the objective of recognizing the changes in the fair values in income.

The Case of USA
In USA, the accounting standards for Fair Value Accounting for Financial Instruments, are set keeping in mind certain requirements. These requirements refer to the necessity of recognizing derivatives at their fair value. There is also the requirement of recognizing some investment securities.
Other than setting the accounting standards, the Financial Accounting Standards Board (FASB) of USA, has also made many balance sheet amounts dependent on the partial application of the Fair Value Rules.

These Fair Value Rules depend on the following things:
The ad hoc circumstances.
Goodwill and Loans
Whether changes in fair Value are hedged using the derivatives

The Financial Accounting Standards Board (FASB) of USA works along with International Accounting Standards Board (IASB), in order to ensure the feasibility of recognizing all the assets and liabilities at their fair value. In fact, in USA, the Securities and Exchange Commission supports the recognition of all financial liabilities and assets at their Fair Value.

The Commission supports the fair value recognition on the following grounds:
The Securities and Exchange Commission believes that, the fair value recognition of financial instruments will reduce the use of those transaction structures which are accounting motivated.
According to the Securities and Exchange Commission, the fair value accounting of financial assets and liabilities will lower the complexity level of financial reporting.


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Last Updated on : 1st August 2013

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