An Evaluation Of The Implementation Of Fair Value Accounting: Impact On Financial Reporting

Abstract

<p class="MsoNormal" style="text-justify: inter-ideograph; text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="color: #0d0d0d; font-size: 10pt; mso-themecolor: text1; mso-themetint: 242;"><span style="font-family: Times New Roman;">The accounting industry is in a state of continuous change.<span style="mso-spacerun: yes;">  </span>In the United States, the historical cost principle has traditionally been the foundation of accounting.<span style="mso-spacerun: yes;">  </span>Until recently, assets and liabilities have been required to be recorded at their acquisition prices, with the exception of designated financial assets and financial liabilities.<span style="mso-spacerun: yes;">  </span>However, the Financial Accounting Standards Board (FASB) has now created accounting standards that are distant from the cost principle.<span style="mso-spacerun: yes;">  </span>Statement of Financial Accounting Standards No. 157: Fair Value Measurements, issued in September 2006 (FAS157, now codified as ASC 820) and Statement of Financial Accounting Standards No. 159: The Fair Value Option for Financial Assets and Financial Liabilities, created in February 2007 (FAS159, now ASC 825-10-25), significantly increases the viability of fair value accounting. The purpose of this paper is to illustrate the benefits and pitfalls of fair value and the corresponding affects on various stakeholders. <span style="mso-spacerun: yes;">  </span></span></span></p>