Fair value evaluation in financial statements: the tangible assets and financial instruments case

Author:PhD. Student Monica JULEAN

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Keywords:subsequent evaluation, fair value, historical cost, re-evaluation, impairment, active market

Abstract:
The opportunity of presenting various elements in financial situations at fair value or at historical cost is the subject for debates from over 10 years.\r\n\r\nBefore the 90-th the concept of fair value was almost never present in accountancy. There are various definitions more or less similar regarding the fair value, but the main idea is that the fair value should represent the market value of an asset or debt.\r\n\r\nThose who sustain the idea of fair value in financial situations consider this the most adequate valuation method in financial situations. \r\n\r\nThose who are against this valuation technique consider that the historical cost is a more efficient valuation method as it presents in a clearer manner the performance of an entity and because the fair value estimations can be irrelevant or can’t be verified. \r\n\r\nFair value is thought by many authors to be the future of valuation techniques in annual financial situations as the most adequate and close to economic reality valuation technique. \r\n\r\nWhere does the fair value apply?\r\n\r\nIn financial situations many elements are presented at fair value both for the initial valuation or at further moments.\r\n\r\nAt the acquisition moment, fair value is most times equal with historical cost.\r\n\r\nIn case of financial instruments, fair value can be different from historical cost.\r\nFor further recognition fair value measurement is applied for:\r\n- tangible assets revaluation;\r\n- impairment of intangible assets and other assets;\r\n- valuation of financial instruments.\r\n\r\nThe information presented through annual financial situation is reliable if it represents in a relevant manner the economic reality of the transactions is prudent and complete over all the significant aspects.

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