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In 2006, the Financial Accounting Standards Board (FASB) implemented SFAS 157 in order to expand disclosures about fair value measurements in financial statements. [3] Fair-value accounting or "Mark-to-Market" is defined by FAS 157 as "a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date".
Loan receivables are classified as either held for sale (HFS) or held for investment (HFI) based on management's intent. If a loan receivable is HFS, it is measured at the lower of cost or fair value. Meanwhile, if it is HFI, it is measured at amortized cost. [3]
IFRS 13, Fair Value Measurement, was adopted by the International Accounting Standards Board on May 12, 2011. [17] IFRS 13 provides guidance for how to perform fair value measurement under International Financial Reporting Standards and took effect on January 1, 2013. [17] It does not provide guidance as to when fair value should be used. [18]
Key takeaways. A home's fair market value is, in a nutshell, the price that a buyer would pay a seller in an open market. Many factors go into determining it, including location, size, age ...
On the other hand, proponents for fair value accounting believe that fair value was not the cause of the crisis. Instead, they suggest fair value only communicated the effects of poor decisions, such as subprime loans. Proponents also believe that fair value accounting provides investors with critical transparency of companies. [5]
Loans and receivables are also either measured at fair value through profit or loss by designation or determined to be financial assets available for sale by designation. All other financial assets are categorized as financial assets "available for sale" and are measured at fair value through profit or loss by designation. [6]