Fair Value Accounting Practices. Accounting, Finance, SPSS.

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Fair Value Accounting Practices
Fair value accounting denotes a measure used to determine the worth of an asset or liability based on current market value (Stuart, 2020). It is a measure used for gauging the value of assets and liabilities listed on the firm’s financial statements.
One advantage of fair value accounting is that it ensures accurate valuation of a firm’s assets and liabilities. Given that the fair value practices are informed by the current market value as indicated in the financial statements, it ensures accuracy (Chung & Mitra, 2016). In a case where the price of an asset or liability goes up or down, the firm marks the valuation to reflect what it would receive if the asset is sold or pay for the liability. Another advantage of fair value accounting is that it lowers the ability of an individual or firm to manipulate the its stated net income. The fair value does not measure the income derived from profit/loss but rather the actual value (Chung & Mitra, 2016). Applying fair value accounting practices means that profits or losses after a change in price of any asset or liability should be reported within the period they happen. The process eliminates risk of manipulation. The other advantage of fair value accounting practices is that it can be adapted to various types of assets. Stuart (2020) argues that it is the most agreed upon standard of measuring the value of all types of assets. For instance, it can value equipment and even other assets like land.
The disadvantage of fair value accounting is that it can result in frequent huge swings in value through the year, especially, in assets that often fluctuate, making them volatile. When markets stabilize, the value often reverses to the earlier normal levels and any gains or losses reported become temporary (Chung & Mitra, 2016). The situation can result in investor dissatisfa...