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Fair Value Accounting

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Fair Value Accounting
Abstract
Recently, fair value accounting suffers heated debate because the financial crisis. The purpose of this article is to evaluate and understand fair value both in literature analysis and practice. This paper emphasizes the advantages and disadvantages of the fair value measurement. Proponents believe that fair value can provide timely information that reflects current financial market conditions, and information supplied is reliable. On the other hand, critics argue that fair value accounting results the problem of volatility, limited verifiable and reliable information and procyclicality trend.

After evaluating the fair value method, two companies were selected which are Qantas and BPH Billion to reflect the real application of fair value and other alternative methods in their 2011 financial reports. The dominant measurement is still historical cost, but firms still widely use fair value in derivative financial instruments, employee share plan and so on. This article also comments the differences and similarities between two companies.

The last part shows the future development of fair value, and the opinion is not to abandon this measurement. Suggestions are also provided to solve particular problems, for example, firms can disclosure sufficient and relevant information and assumptions in Level 1, 2 and 3, and regulators should continue to issue fair value measurement standards and make modifications.

Introduction
There are some heated debates about fair value merits and demerits and whether it has future development in financial report. Fair value is also called mark-to-market accounting and it is defined as the value of assets and liabilities could be exchanged between knowledgeable and willing parties in arms length transactions. The research methods of this article are based on some empirical evidences and analysis of literature. In the first part, it critically evaluates the fair value accounting by addressing the pros and coins, and
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