Fair Value and Historical Costing

Laux and Leuz believe that the lack of transparency in past costing could worsen things during the financial crisis and can be assessed using accounting theory focused on the global financial crisis (GFC) It is. In the following discussion we will focus on measurement problems faced by the crisis, especially the fair value (FV) and historical cost accounting (HC), focusing on the 2008 financial crisis. In this discussion, which one compares worsens the crisis.

As can be seen from the literature and research, both fair value and historical costs have accounting place. Because there are various unique projects, the common criteria for valuing assets is suitable for some people, but it is not suitable for others. Fair value is beneficial as it can provide up-to-date value of commercial assets, but fair value may also incorrectly exaggerate the value of the company by mistake or misstatement, Increase trust. capital

Advocates of fair value argue that historical expenses of assets on the company's balance sheet are usually of little relevance to their present value. According to historical costing rules, most assets are transferred at purchase price or original amount, fine adjustment of lifetime depreciation expenses (as in the case of buildings) or expiration date (as in case of bond purchase) Evaluation amount up to is fine-tuned. As a result, a company owns a building for decades, so there is a possibility that it will be displayed in books with lower value than actually commanded in today's market.

Christensen and Nikolaev (2009) can consider whether the company chooses fair value or acquisition cost and can choose between two valuation methods. Their research shows that in addition to the real estate owned by real estate companies, past expenses are actually fair value. They pointed out that fair value accounting is not used for factories, equipment and tangible assets. They found that companies using fair value accounting depend on financing through debt rather than companies using past expenses. This evidence is consistent with a company using fair value to indicate the asset liquidation value to creditors and is not consistent with equity investors who require fair value accounting for nonfinancial assets.