In addition, financial statements that are prepared following International Financial Reporting Standards are a better decision making data. To explain, International Financial reporting standards require that all import accounting facts that would help the investor and seller in the derivatives market will need both the historical fair market values, usually covering more than a month of stock market transactions to make better decisions. This is the main reason why the fair market values are needed. This is what is known in accounting parlance as the predictive value of accounting data.
For example, the historical list of fair market values of gold showing that price of the United States dollar has been dropping against the European dollar gives the investor in the United States dollar the impression that the United States will continue to go down until it reaches in the bottom of a trend (Winograd, and Herz 1995). This bottom fair market price in the chart will give the derivatives investor the impression that a derivative that reaches the bottom of the trend line will have a very high probability to rise up again.
Also, the fair market values of the current time period plus the fair market values of the past year or years of stock as mandated by the International Financial reporting standards will give feedback value to the derivatives buyer as well as the derivatives seller. For example, the holder of a derivative stock’s current fair market values will show both the derivative seller and the derivative buyer that his decision to invest in Petroleum is a wise decision because the current prices of gasoline prices are increasing.
The derivatives investor hopes that he will sell his or her investment in petroleum and gain a profit in the future because the future price will probably be higher than the commodities price he pays currently. Whereas, producing financial statements where the fair market values are not recorded will not be as good as using the fair market values of the derivatives in recording this type of fast –paced and volatile market which describes the derivatives market(Cocheco 1992).
Furthermore, financial statements that are prepared in accordance with International Financial Reporting Standards are more consistent with accounting bodies. The use of fair market values follows the accounting principles of timeliness. For, using the fair market values of the derivatives would help the derivatives investor to relevantly make more accurate decisions as to whether he or she will invest more in the Chinese currency or the Japanese currency or in Soy beans. The investor needs the fair market values in order to make timely decisions.
Whereas, not presenting the current fair market values that is the requirement of international financial reporting standards would not fulfill the basic accounting principle of timeliness. The investor who is not supplied the current fair market values of the derivatives would have a high probability of making a sell decision because the historical figures show that the price of the United States dollar is rising when in fact the current fair market value price of the United States dollar is declining(Guido, and Walsh 2001).
Likewise, financial statements that are prepared in accordance with International Financial Reporting Standards are more understandable. The use of the fair market values in the presentation of accounting data would make the financial statements more relevantly understandable. The list of the fair market values found in the commodities market will make the derivatives investor understand that the prices of some commodities are volatile of the erratic ups and downs in their fair market values. This is what is called as a bull market in the derivatives parlance.
The bull moves very fast. Also, the list of fair market values of another derivative will show that its fair market value is not changing as rapidly as others. This is what is called as the bear market in the derivatives market. The bear moves slowly. Whereas, not following the International Financial Reporting standards of using the current fair market values in the presentation of derivatives data would definitely not give the timely data needed help the derivatives investor to make timely decisions to invest more or withdraw his derivative investments(Guido, and Walsh 2001).