Fair Value Accounting Vs Historical Cost Accounting

Fair Value Accounting Vs Historical Cost Accounting i) Fair Value and Historical Cost Accounting Historical cost accounting is an accounting method by which assets are valued based on the actual amount of money with which they are bought and as such no inflation adjustments applied. (Eipstein and Jermacowicz, 2007). Fair value accounting on its part deals with the fair market value of the asset. A number of definitions for fair value are provided by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). According to the FASB cited in Barlev and Haddad (2003) â€Å"Fair value is the price for which a property could be sold in an arm’s length transaction between unrelated parties†. FAS 13 Accounting for Leases. According to Rayman (2007: 213) citing FASB (2006, par. 5) â€Å"fair value is 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†. A similar definition is provided by the IASB in IAS 39 Financial Instruments, Recognition and Measurement: â€Å"fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction†. (IAS 39. par. 9) (Bertoni and De Rosa, 2005; Epstein and Jermacowicz, 2007). According to the IASB fair value can be defined as: â€Å"the amount at which an asset could be exchange or a liability settled between knowledgeable willing parties at an arms length transaction† The fair value concept is used in many accounting standards such as the IFRS covering certain areas like acquisitions and valuation of securities. A fair value is used in situations where the actual cost of an asset is not obtainable. Assets will need to be revalued from time to time for instance when the market value for securities change or when their purchase price is inseparable from larger transactions (as in the case with acquisitions). (Eipstein and Jermacowicz, 2007). The fair value can be determined by the following methods, in IFRS order of preference as such: If there are identical transactions in the market, assets and liabilities should be valued with reference to such transactions i.e. If identical transactions do not exist, but similar transactions exist, fair value should be estimated making the necessary adjustments and using market based assumptions If either of the above methods cannot be used, other valuation methods may be used. (Eipstein and Jermacowicz, 2007). Fair value often has a subjective element as so many valuations are likely to use the latter two methods. ii) The Ideal Approach The most suitable approach to valuing assets and liabilities is the fair value approach. According to Barlev and Haddad ( 2003) the IASB and FASB consider HCA-based financial statements as obscuring the real financial position and the results of operations of a firm thereby providing ample room for manipulation. Historical cost accounting book values of assets and liabilities provide managers some loopholes to conduct earnings management thus concealing their real activities. (Barlev and Haddad, 2003). On the contrary, fair value accounting on the other hand measures and records current values of assets and liabilities in the balance sheet therefore making the book value to be approximately equal to the market value. The fair value approach therefore increases the value relevance of the balance sheet. (Barlev and Haddad, 2003).The basic premise underlying the FASB’ s decision is that fair value of financial assets and liabilities better enables investors, creditors and other u sers of financial statements to assess the consequences of an entity’s investment and financing strategies. (Khurana and Kim, 2003). Carroll et al. (2002) investigate the value relevance of fair value accounting relative to the historical cost accounting for financial instruments held by closed-end mutual funds. The findings suggest that there is a significant relationship between stock prices and the value of investment securities as well as between stock returns and fair value securities’ gains and losses. (Carroll et al., 2002). Despite the IASB and FASBs’ interests in the fair value approach, there are some inherent problems with the approach. The main problem with the fair value approach is determining the fair market value of assets that do not trade in active markets. According to Carpenter et al. (2008), this issue has been a subject of debate in the accounting profession. Accounting standard setters (the IASB and the FASB) recommend two solutions to this problem: (i) consult outside experts, for example, in the valuation of real estate, the services of a real estate expert should be sought; (ii) practitioners’ associations should develop valuation models. (Carpenter et al., 2008). However, despite these adjustments, Carpenter et al. (2008) suggest that there are still doubts as to whether skilled experts provide accurate and homogenous valuations. Analysing the consistency and quality of valuations provided by a sample of 43 business valuation experts who were asked to value a small high tech firm preparing for an IPO, Carpenter et al. (2008) provide evidence that skilled experts employ different methods and multiples even when they rely on the same guidelines. Moreover, there are significant variations in the fair market values for the same investment. (Carpenter et al., 2008). The evidence also suggest an upward bias in the fair market value of the high tech firm as compared to the actual value following the IPO. (Carpenter et al., 2008). iii. Implications for Future Accounting Standards The implications for future accounting standards is that the IASB and the FASB should develop more appropriate methods of determining fair value, especially for assets and liabilities for which there is not active market. By so doing the value relevance of the balance sheet will increase. BIBLIOGRAPHY Barlev B., Haddad, J. R. (2003). Fair value accounting and the Management of the firm. Critical Perspectives on Accounting, vol.14, 383–415. Benston, G. J. (2006). Fair Value Accounting: A Cautionary Tale from Enron. Journal of Accounting and Public Policy, vol. 25, pp. 465-484. Carroll, T. J., Linsmeier, T. J., Petroni, K. R. (2002). The Reliability of Fair Value vs. Historical Cost Information: Evidence from Closed-End Mutual Funds. Journal of Accounting, Auditing, Finance. Carpentier, Cecile, Labelle, Rà ©al, Laurent, Bruno and Suret, Jean-Marc (2008). Does Fair Value Measurement Provide Satisfactory Evidence for Audit? The Case of High Tech ValuationAvailable at SSRN: http://ssrn.com/abstract=1269743 Epstein, B. J., Jermakowicz E. K. (2007). Interpretation and Application of International Financial Reporting Standards. Wiley and Sons Inc. Khurana, I K., Kim M. (2003). Relative value relevance of historical cost vs. fair value: Evidence from bank holding companies. Journal of Accounting and Public Policy, vol. 22, pp. 19–42. Rayman, R. A. (2007). Fair value accounting and the present value fallacy: The need for an alternative conceptual framework. The British Accounting Review, vol. 39 211–225

Kari Charboneau Competency Statement Essay

To establish positive and productive relationships with families To establish positive and productive relationships with families I try to make sure I keep an open, honest relationship with them. I feel its important to have my parents feel that they can trust me. I also feel its important they know I have the best interest of their child in mind. Parents need to feel that they are being listened to and that we care enough to work with them in regards to their child’s wellbeing.†¦ CG 4.1 Keeping Families Informed In my center it’s a priority to make sure we are keeping all families informed of all the things that we as a center do as well as their individual child’s daily activities. I would have a welcome packet that includes contact information as well as center information. This would include information such as teacher profiles, center policies etc. I will make it a point to get to know each parent and to establish an open dialect. I would have information as to how they can contact me to discuss any concerns they may have as well as just general information we just share on a daily basis. We would have a monthly newsletter and calendar with center activities on it as well as weekly information in the entry way to remind them of any upcoming events we may have. There will also be daily communication sheets provided for each child describing what their child did throughout the day. Parents will know that they are welcome to stop in or call a t any time to check on their child’s day. CG 4.2 Teaching Practices I believe that by having open conversations with my families they start to trust and with that we have conversations about not only their child but also our own lives outside of the center. Knowing that maybe one parent might be out of town is good information to have. This helps us understand why a child may be having a change in behavior. I will make sure I know the children in my care well enough to notice changes and having a good parent relationship’s will allow me to communicate with them and find out if they notice the changes as well and to see if they have ideas as to why. If it’s not a typical reason we would expect to see a change in behavior from we can then work together to see if we can’t figure  it out and come up with a plan that will help meet that child’s individual needs. There will be a communication sheet written out daily that will highlight their child’s day and at pick up we can then discuss why their child may have had a more difficult day or even the opposite that their child was really happy. We may find out that they have family visiting that the child loves to be around or that Daddy has been out of town for a few days. These are both good reasons to see a change in a child’s normal behavior. Communication is very important in keeping good relationships going.

Fish Bone Chart Essay

ABSTRACT The experiment aims to analyze the causes of each problem (effect) identified in raw eggs and mayonnaise products during manufacturing and processing through the use of fish-bone diagrams or Ishikawa diagrams (cause and effect diagrams).Additionally, dispersion analysis and process classification type fish-bone diagrams were used. The result of the experiment showed that process classification diagram is more effective in pinpointing specific causes of error/ problems thus help more in formulation of corrective actions to be taken. However, dispersion analysis concentrates more in analyzing the general root causes of the errors/ problems, thus fails to identify minor causes of the problems. I. INTRODUCTION A fish-bone diagram, also known as Ishikawa diagram or a cause-and-effect diagram, is an organized tool that helps manufacturers in identifying the possible causes of quality problems (Forman, 2001). This visual tool is also used for organizing possible causes of defect in different categories. It has angled lines, or the ‘bones’, which represents a possible cause of error. Each bone can have ‘sub-bones’ which contains further details about a possible cause of error. The ‘bones’ are joined together in a singular straight line that describes the main defect. This outline gives a shape similar to the bones of a fish, hence the name fishbone chart as seen in Figure 1. Figure 1. Fishbone Diagram (Cinergix Ltd, undated) There are three main types of fishbone diagrams namely, the dispersion analysis type, product process classification type, and the cause enumeration type. The dispersion analysis type organizes and relates the factors that result in the difference among the product and other process  outcomes. The production process classification type is made by making the steps in the production process be the major ribs of the fishbone diagram. It focuses on each step of the process to determine all possible causes of the error. In the cause enumeration type, all possible causes that results to the defect is determined and then organized to show the relationships to the aspect of product of process quality that is being examined (Florac, 1999). II. METHODOLOGY Prior to the exercise, the group identified and listed possible defects in both eggs and mayonnaise. One possible defect was then chosen for each the raw material (eggs) and the finished product (mayonnaise). The possible defects chosen were cracked eggshells and unstable emulsion for the raw material and finished product, respectively. The group then constructed two types of fishbone diagrams (Dispersion Analysis and Process Classification) for each of the chosen possible defects by identifying and writing its main causes and further causes in the diagram. The diagrams were then analyzed by the group to determine the root cause of the defects and to identify and suggest corrective actions to eliminate it. The effectiveness and efficiency of the corrective actions were also considered and analyzed. The group then presented the diagrams to the class. III. SUMMARY OF RESULTS (See Appendix) IV. INTERPRETATION OF RESULTS Dispersion analysis and process classification type of fishbone diagrams are used in the analyzation of the causes of the problems identified. Dispersion analysis cause and effect diagrams are structured in such a way that the factors contributing to the problem under study are classified into the â€Å"standard six† which are manpower, methods, materials, measurement, operators, and environments. Process classification diagrams on the other hand are structured in such a way that the factors are classified according to steps involved in the process (Brassard and Ritter, 1994). In the case of mayonnaise, some of the steps are sifting, mixing and filling. In terms of emphasis, dispersion analysis CE diagrams are advantageous in such a way that it helps organize and relate the factors that lead up to the problem. However its drawback is that it may fail to identify minor causes that may  be overlooked (Omachonu & Ross, 2005). On the other hand, the advantage of process classification CE diagrams is that is easier to create because it follows the process in a product. However, redundancy may occur. Process classification is often used when the problem encountered cannot be isolated into a single department (Basu, 2011). An example of which is faulty factory workers which may be a reoccurring problem in all steps. This makes it hard to pin point what corrective action should be performed (Omachonu & Ross, 2005). Based on the exercise, it was observed that the use of process classification CE diagrams are more effective in being able to identify the specific causes of errors within a process however; dispersion analysis CE diagrams were able to pinpoint general root causes of the problem by narrowing down the sources of errors into the â€Å"standard six†. General corrective actions can be generated using dispersion analysis CE diagrams but process specific corrective actions can be generated from process classification CE diagrams V. REFERENCES Basu, R. (2011). Fit sigma: A lean approac to building stustaiable quality beyond six sigma. (1st ed., p. 71). UK: John WIley and Sons Ltd. Brassard, M. and D. Ritter. (1994) The Memory Jogger II: A Pocket Guide of Tools for Continuous Improvement & Effective Planning ,Methuen, MA: Goal/QPC. Accessed via: http://www.goalqpc.com Cinergix Ltd. (n.d.). Graphic Organizer Templates. Retrieved January 3, 2012, from Creately: http://creately.com/examples/Graphic-Organizer-Templates Florac, W. C. (1999). Measuring the Software Process: Statistical Process Control for Software Process Improvement. Indianopolis: Addison-Wesley Professional. Forman, E. S. (2001). Decision by Objectives: How to Convince Others That You Are Right. Washington: World Scientific. Omachonu, V. K., & Ross , J. E. (2005). Principles of totaly quality. (3rd ed., p. 265). New York: CRC PRess.

Personal Narrative Story My Nephew - 1173 Words

My Nephew. M Robbins I remember waking up to a commotion in the living room around 3 am. My parents were talking excitedly, and overly loud for that early in the morning. I was confused as to why they were awake, considering it was a work night for my mother, and she usually took advantage of getting as much sleep as possible. Quietly I arose from my bed, and made my way over towards my bedroom door, and pressed my ear against the door. I strained my ears as much as I could trying to pick out anything I possibly could. I wasn t able to continue my eaves dropping for very long,†¦show more content†¦It s debatable that my brother who was about to become an uncle, David ,was more excited than my brother who was about to become a father, Ryan. You could see the nervousness on my eldest brother Ryan s face, it was impossible to mask. Much to my disappointment the baby hadn t been born yet, and my sister-in-law, was still in the beginning stages of labor, and it could be hours, or even days before she gave birth. We stayed at the hospital all day in hopes that the baby might be born. We mostly wandered around because my sister-in-law understandably wanted to be left alone, for the majority of the day. We went to the gift shop, and the cafeteria, but mostly just aimlessly walked around, awaiting news. News never came, and soon enough we were forced out of the hospital, because visiting hours were over. The drive home dragged for a drawn out amount of time, as we were all dismayed that we had not met our new family member. It was late when we eventually arrived home, and we all went to sleep. My dad received a call from my brother early the next morning, announcing that the baby had been born. As a result of this, the following morning, we made the same commute as yesterday. Nobody had taken the time to make coffee or get breakfast that morning, so on the way down we made a stop at a coffee shop that we frequented. We made sure to hurry, so that we could arrive to the hospital as quickly as possible. Once we arrivedShow MoreRelatedSlavery as a Gothic Narrative779 Words   |  3 PagesSlavery as a Gothic Narrative Slavery can be considered a gothic narrative because it holds elements of a typical gothic piece. Some of those elements include some form of psychological or physical haunting, an atmosphere of mystery, and supernatural events that cannot be explained. By looking at Beloved by Toni Morrison there lies evidence to why slavery fits in the gothic setting. 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