Contents

• Problems in accounting measurements
• Fair Value Measurement and it’s role in global financial crisis
• Role of Fair value accounting in global financial crisis
• Referencing

Description

The basis of financial accounting is to answer two questions – how did the business performed last year and what assets are owned by the business at the end of the year. These questions are answered in the income statement and in the balance sheet. Elmaleh (2007) has rightly stated I his article that money is the unit of measurement in accounting and for obvious reasons it is not a very stable option. The purchasing power of money varies with time and also from country to country. While evaluating an income statement and balance sheet, the economic conditions are generally neglected and this often leads to wrong deductions. Let us consider this example. Two companies have a debt of $100,000 and it was seen that one company has to repay all its debt within one year and another company can repay them back after a period of ten years. It is quite obvious that economic conditions of these two companies are not the same. Analyzing the situation, Elmaleh (2007) has mentioned that the economic conditions can be judged by calculating the assets owned by the firm and their values and herein begins the problem. Elmaleh (2007) has categorically mentioned that there are multiple standards available to calculate the value of assets. Some of them use the current market value of the assets, while some use the original cost at which price it was bought.