This paper attempts to reply the inquiry: “Is it sensible to fault just value accounting for any of the Wall Street muss? ” This paper in consequence settee whether the usage of just value accounting by listed companies in the major stock exchanges in the US. peculiarly those found in Wall Street. which the caused autumn in monetary values of the stocks of these companies. was required of companies without justification ; hence. it should be blamed for the muss. 2. Analysis and Discussion
Any muss in the Wall Street is defined for this paper as one doing the stock monetary values of companies list in major stock exchanges of the US to fall and that it resulted to losingss to investors. To hold sensible footing to fault just value accounting for any Wall Street muss. does non merely intend that just value accounting was the necessary cause of autumn in the monetary values of corporate stocks but that the demand of just value accounting must non be just. The inquiry that must be decided hence is whether just value accounting is just as footing of valuing corporate assets. liabilities and equity.
A state of affairs or status is just if it gives what is due to a individual. If the construct of just value is used in the context of an plus purchased or liability assumed in concern. just value implies that said plus or liability must neither be overpriced nor underpriced whether perceived or otherwise. The jurisprudence of economic sciences would hold just value as one stand foring that market monetary value or that equilibrium monetary value of a merchandise or service ( Samuelson and Nordhaus. 1992 ) which is besides the value of something from a marketer that is non forced to sell or from a purchaser that is non forced to purchase.
Investors. creditors. and other individuals expect to be treated reasonably as they enter into minutess in footings of value that they will give in exchange to what they will have. To exemplify. a individual or company planning to put in stocks will appreciate what is just if the said individual or company will gain sufficient return above cost of capital in exchange for the hazards being faced by such individual or company ( Brigham. 2002 ) .
To hold what is just. the investors must cognize the accurate and dependable information about of the company to steer them about their opportunities of deriving or losing money. These users deserve to hold the chance to hold the true or accurate value of plus. liability or equity being dealt with in a concern dealing as footing for valuing the stocks that they will put with. Fiscal studies prepared companies. as guided by Financial Accounting Standards Board ( FASB ) accounting standard under just value accounting. will supply these users the chance.
Specifically. just value accounting was made pursuant to FAS 157 as issued by US FASB for companies to reflect the accounting information on the existent values of assets. liabilities and equity in the balance sheet as contrasted with showing the information utilizing the historical cost accounting ( Meigs and Meigs. 1995 ) . A group of analysts and portfolio directors really formed portion of those who influenced the transition of the just value accounting for more relevant information in determination devising ( Chasan. 2008 ) .
Under FAS 157 defines just value is defined as the monetary value that would be received “to sell an plus or paid to reassign a liability in an orderly dealing between market participants in a measuring date” ( Sortur. 2007 ) . If companies have restated their fiscal statements from historical cost accounting to fair value accounting. the intent was commendable since in simple footings. the purpose is to do the information more relevant. more accurate and more dependable for determination shapers.
If shareholders got affected in footings of lower monetary value of stocks as a consequence of restatement of fiscal statements. the mistake was when they were made the purchase of their investings under the historical cost accounting. Since just value accounting may besides increase the value of the stocks if just value is higher than cost. it could non be asserted that it should be blamed for the autumn of monetary values but non praised for increased in monetary value addition of stock monetary values. 3. Decision
It can be concluded that it is non sensible to fault just value accounting for any of the Wall Street muss since just value accounting is merely conveying out what is just to investors who deserved to cognize accurate and dependable information for doing determinations. Fair value accounting is an accounting criterion made by FASB that was made as a demand from the corporation which must show true and dependable information for investors. As an option to historical value of accounting. just value is expected to hold present company more dependable information about their assets and liabilities in conformity with market monetary values.
Its execution may hold caused companies to show their fiscal information and if the information presented were more true. the effect of doing jobs to companies should merely be secondary to the intent of supplying nonsubjective and more dependable fiscal information. Any autumn in stock monetary values from Wall Street may in fact have been caused by companies holding to repeat their fiscal statement pursuant to fair value accounting but the purpose was to reflect to truer value of assets and liabilities of the corporations whose stocks got affected.
Losers should non fault just value accounting since the latter is merely a usher to hold more true information and they would hold a alteration besides of higher stock monetary values under just value if warranted by market forces. If there was no footing for such more true information. so restatements of fiscal information utilizing just value would non hold been made in the first topographic point. If purchasers and Sellerss are non being compelled to finish their dealing. just value accounting must be held as just and can non be blamed for the muss.
In fact. just value accounting should hold been introduced old ages ago for it could hold saved some maltreatment and a batch of jobs ( Rees-Mogg. 2007 ) . Mentions: Brigham and Houston ( 2002 ) . Introduction to Financial Management. Thomson-South Western. USA. 2002 Chasan. Emily ( 2008 ) . Is just value accounting truly just? { www papers } URL. hypertext transfer protocol: //www. reuters. com/article/reutersEdge/idUSN1546484120080226. Accessed November 21. 2008 Meigs and Meigs ( 1995 ) . Fiscal Accounting. McGraw-Hill. Inc. London. UK
Rees-Mogg ( 2007 ) . Why FAS 157 work stoppages dread into bankers. { www papers } URL hypertext transfer protocol: //www. timesonline. co. uk/tol/comment/columnists/william_rees_mogg/article2852547. ece. Accessed November 21. 2008. Samuelson and Nordhaus ( 1992 ) . Economicss. McGraw-Hill. Inc. London. UK Sortur ( 2007 ) Fair Value Measurement. The Chartered Accountant { www papers } URL. hypertext transfer protocol: //icai. org/resource_file/96471564-1574. pdf. Accessed November 21. 2008
