Financial Analysis: Historical Accounting Vs. Fair Value Accounting

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Historical Accounting Versus Fair Value Accounting
A company’s financial statements offer numerous types financial information that stockholders and creditors use to determine a company’s economic wealth. Financial statements also deliver past performance results along with future financial abilities. The information obtainable in a financial report is governed by laws and/or by accounting standard practices. Accounting information should be consistent to a degree and should be confirmable as well as good faith reporting. Trustworthiness is inevitability for companies or businesses that have experienced financial officers to evaluate the truthfulness of the company’s financial information. These financial reports give a company’s management
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This type of reporting can help commit fraud. This is the reason why I feel like companies should be made to accurately report assets under the current market price. On the other hand, “Fair value accounting is a type of financial reporting method, known as the “mark-to-market” accounting practice, and is familiar with generally accepted accounting principles (GAAP)” (Way, 2018). With using this method, companies can quantify and report the value of assets and liabilities of their actual fair market values and/or any variations in the reported asset or liability values over the course of it life as a gains or losses (Way, 2018). This will accurately increase or decrease net income and the reported equity on the balance sheets (Way, 2018).
Fair value accounting seems to be the better reporting method because the asset value of a company is more likely to be accurately reported. Which means the true value of the company’s worth is not understated or skewed by not reporting profits and/or loss. Therefore, the true financial health of the company can be accessed with
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As an on looker, I agree with the argument that fair value accounting presents a better representation of reporting assets. It is most reliable and accurate. Any company both large and small needs to consider what would be describe as a better financial portfolio for their business especially if they looking to attract outside investors. Even though investors will most likely do the homework and thoroughly evaluate the company’s financial health before investing any capital in the business. Due diligence should start within the company when reporting assets and liabilities. It is the ethical thing to do. Companies have a fiduciary duty to their stakeholders/investors to guarantee all professional and all financials are conducted in an ethical manner. This will help safeguard the company against fraudulent

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