Definitely, financial statements that are prepared in accordance with International Financial Reporting Standards are more reliable. The presentation of the financial information using the fair market values is more truthful than a financial statement that is prepared using only estimates. The use of fair market values makes the financial accounting data more reliable because the bias of estimating the financial accounting data in terms of derivatives would be of lesser quality to the eyes of the derivatives investor.
People would better appreciate accounting data that is reliable. And, this is especially true in the derivatives market. The use of current as well as the past fair market values would give the derivatives investor a more complete picture of the derivative that he or she is interested to invest in. The use of fair market values makes the accounting data reliable because fair market values are definitely free from bias. The fair market values are reliable because they are neutral.
This neutrality is due to the fair market value is the equilibrium price agreed by the buyer and the seller of a derivative. Likewise, the fair market value makes the accounting data more reliable because the use of historical as well as the current fair market values makes the accounting information more complete. Whereas, violating the International Financial Reporting standards of not using the fair market values would surely give the derivatives investor a less than complete picture of what is currently happening to the derivative in terms of fair market values and trend analysis.
Lastly, preparing the financial statements in accordance with International Financial Reporting Standards is a plus in terms of financial reporting equity. The use of fair market values in the presentation of accounting data would definitely be a plus to the financial accounting data. For, the derivatives investor must know the fair market values in order to determine how much he or she will state as his offer price in the commodities sell market. Likewise, the fair market value is a plus to the derivatives buyer.
The plus characteristic of using the fair market value to comply with International Financial Reporting standards is also due to the reason that the derivatives investor is always kept on his toes with a list of the past as well as the latest blow by blow presentation of fair market values of the derivative that he is has already put his hard earned money. Likewise, the use of the fair market values in the preparation of financial data is a big plus because it fulfills the accounting theory of substance over form.
Substance over form means that it is that what is important is not whether the financial statements are presented in short form, in long form, in beautifully engrossed reports, in high quality printing paper, or otherwise but rather what the financial statements will do in terms of helping the investors in the derivatives market as well as investors in other types of business to make better decisions. Also, the use of fair market values is a big plus because it also follows the accounting principle of conservatism.
Conservatism means that the person or corporation must present financial accounting data that has the least effect on the shareholders’ equity portion of the financial statement, more specifically the balance sheet. Also, the financial statement is a plus if fair market values are used because it follows the accounting principle of adequate disclosure. Adequate disclosure means that the company or the person responsible for the financial statements must present all relevant, reliable as well as understandable information needed to make an informed decision.
Simply put, the preparers of the financial statements must present the accounting information with the end in mind that the financial data must not be misleading. The financial information is a plus if the company uses fair market values because it is in compliance with the accounting principle of consistency. Consistency means the application of the same accounting principle between two financial accounting periods or between two competing companies. Most of the companies will be using the fair market values in generating financial data.
It is easier to compare and contrast the financial statements of two different accounting periods if only one type of accounting method, procedure or standard is used. The financial information is a plus if the company uses fair market values because it is in compliance with the accounting principle of comparability. Comparability means that the company has the ability to bring together different sets of financial information for the purpose of noting their similarities and differences. Comparability includes comparing data between different accounting periods or between the financial accounting data of two competing companies.
The financial information is a plus if the company uses fair market values because it is in compliance with the accounting principle of materiality. Accounting theory states that accounting data that is material will affect the decision making process of the derivative investor as well as owners of businesses and shareholders of corporation. The use of the fair market value is very material because it will surely sway the investors to increase his or her investment in derivatives, corporations, public listed companies, partnerships and other business ventures.