Fair value - the umbrella of the valuation bases used in accounting

Abstract

Recent deliberations by both the International Accounting Standards Board (IASB) and the Financial Accounting Standard Board (FASB) in the United States have focused on how fair values of assets and liabilities should be measured. According to the international framework, the financial statements use different valuation bases: the historical cost, the current cost, the realizable (settlement) value, the present value (the present value of cash flows). The choice of the valuation basis and the capital maintenance concept will eventually determine the accounting evaluation model used in preparing the financial statements of a company. The multitude of accounting valuation models differentiate one from another through various relevance and reliable degrees of accounting information and therefore, the preparation of financial statements must try to equilibrate these two main qualitative characteristics of financial information.