Understanding Fair Value Measurements in Financial Reporting

In the Summary of Statement No. 157, FASB says the conclusions of fair value measurements follow these parts of the Conceptual Framework: No. 1 Objectives of Financial Reporting by Business Enterprise, No. 2 Qualitative Characteristics of Accounting Information, No. 6 Elements of Financial Statements, No. 7 Using Cash Flow Information and Present Value in Accounting Measurement (Financial Accounting Standards Board, 2006, para. 12). Both the U.S. GAAP and IFRS adhere to Objective No. 1 in that they are striving to provide an increase in the disclosure, recognition, and presentation to the end users of financial statements. Even though some individuals may feel that the fair value measurement creates volatility with reporting statements, the

2 is being adhered to since it allows the end user to see which assets and liabilities may cause an increase or decrease in future earnings reports. Even though it was not mentioned in the Summary of Statement No. 157 by FASB, it could be said that both U.S. GAAP and IFRS relate to Objective No. 4. This objective looks to assess an entity’s prospects for future net cash inflows, exiting and potential investors, lenders, and other creditors need information about the resources of the entity, claims against the entity, and how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s resources (Financial Accounting Foundation, 2010, para. 4). If the end user reviews the footnotes to see a hierarchy of Level Three is needed to price an asset or liability, this should be a flag for closer inspection on why this is needed and to confirm what investments the company is actually getting into. Objective No. 7 is completed by both U.S. GAAP and IFRS since they both attempt information that is helpful to the end user. All in all the purpose is designed to paint a better picture for the end user.

Appropriate Courses of

157, they can be referred to as the two gates mentioned by Jesus in Matthew 7:13-14 (ESV) as it says, “Enter by the narrow gate. For the gate is wide and the way is easy that leads to destruction, and those who enter by it are many. For the gate is narrow and the way is hard that leads to life, and those who find it are few.” FASB and IFRS have a difficult task in that they are pressured by many special interest and political groups to write standards in a particular way. When it comes to their explanations, their response can take two roads, one that is wide and easy or one that is narrow and difficult to make. Based on the roads they take will display their independence to the end user. As the end user of financial statements increase, so will the pressures of accommodating special interest groups. But as Jesus stated, the way is hard and few will find