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(Balsam 2007).
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 derivatives buyer will use the fair market values and the history of fair market values of the derivative listed in the commodities market to determine the bid price that he or she will willing to pay for an investment in the French money -Franc(Coppinger, and Fitzsimons 2002). 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.
The financial accounting data that uses the fair market values is a definite plus to the persons or company presenting such financial data because fair market values are neutral amounts and not based on the estimates or biases of the person or company responsible for the presentation of such financial data(Coppinger, and Fitzsimons 2002). 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. This is one of the countless reasons why the financial accounting data using the fair market as well as the list of the prior market values is a very big plus(Angell 1941, 32).
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. Conservatism means that the preparers of the financial accounting data must recognize estimated future losses but must not record estimated future gains.
In this light, the fair market values are a good example of the application of the conservatism principle. For, the fair market value is the amount that is the agreed price between the seller and the seller of an asset that includes a derivative or two. Conservatism is applied here because the preparer of accounting data recorded what has transpired which is the agreed selling and purchase price of the asset(Angell 1941, 32).