Also, financial statements that are prepared in accordance with International Financial Reporting Standards are more relevant. IFRS standard where the financial statements makes it compulsory for companies to present the balance, income statement and statement of cash flows using the fair market value approach makes the financial reports relevant. For, the fair value amounts of the financial statement items will surely make a difference in term of decision making. For, the fair market valued financial statements relevantly will influence the decision makers to invest more money in the business.
For, the fair market value of the items listed in the financial statements will make the economic decisions relevant. The fair market value is very important in arriving at the earnings fair share information. The assets presented that do not use the IFRS standard of preparing financial statements where the fair market value is used would be presenting information that does not bear on the decision making activity of the stockholder, manager, customer, creditor, supplier or other very interested parties.
For, example the fair market value of the assets, liabilities and shareholders’ equity is very relevant for a company that is closing down. Relevantly, a or group of person will need the latest derivatives figures, also known as fair market values, that the stock market issues in every stock market session to decide whether to invest in more derivatives like the European dollar or to invest in gold. This same person or a company of persons will need the latest market values, also known as fair market value, sell his or her current derivative holdings.
Whereas, using historical cost in the preparation of financial statements would be objective because it does not change as the years move on. 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. 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. 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.
Also, the list of fair market values of another derivative will show that its fair market value is not changing as rapidly as others. 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.