Fair Value .

• Fair Value

https://store.theartofservice.com/the-fair-value-toolkit.html

Stock valuation - Fundamental criteria (fair value)

1 In July 2010, a Delaware court ruled on appropriate inputs to use in

discounted cash flow analysis in a dispute between shareholders and a company over the proper fair value

of the stock


Fair price - Fair value vs market price

1 There are two schools of thought about the relation between the

market price and fair value in any kind of market, but especially with

regard to tradable assets:



1 * The efficient market hypothesis asserts that, in a well organized,

reasonably transparent market, the market price is generally equal to or close to the fair value, as investors

react quickly to incorporate new information about relative scarcity, utility, or potential returns in their

bids; see also Rational pricing.https://store.theartofservice.com/the-fair-value-toolkit.html


1 * Behavioral finance asserts that the market price often diverges from fair value because of

various, common cognitive biases among buyers or sellers. However, even proponents of behavioral finance generally acknowledge that behavioral anomalies that may cause

such a divergence often do so in ways that are unpredictable, chaotic, or otherwise difficult to

capture in a sustainably profitable trading strategy, especially when accounting for

transaction costs.https://store.theartofservice.com/the-fair-value-toolkit.html

Fair price - Fair value vs market value

1 The latest edition of International Valuation Standards Committee|International Valuation Standards (IVS 2007), clearly distinguishes

between fair value, as defined in the IFRS, and market value, as defined in

the IVS:


Fair price - Fair value vs market value

1 Market Value requires this element of Special Value to be disregarded, but it forms part of the assessment of

Fair Value.[http://www.ivsc.org/pubs/exp_

drafts/ivs2.pdf Exposure Draft of Proposed Revised International

Valuation Standard 2 - Bases Other than Market Value, June, 2006]


Fair price - Fair value measurements (US markets)

1 The goal of this framework is to eliminate the inconsistencies

between balance sheet (historical cost) numbers and income statement

(fair value) numbers.



1 On the other side of the balance sheet the fair value of a liability is the amount at which that liability could be incurred or settled in a

current transaction.



1 Topic 820 emphasizes that assumptions used to estimate fair

value should be from the perspective of an unrelated market participant



1 The framework uses 3-level fair value hierarchy to reflect the level of

judgment involved in estimating fair values. The hierarchy is broken down

into three levels:



1 The resulting fair value estimate would then be classified in Level Two or Level Three.



1 The third situation exists when no active or less-active markets exist for

similar assets and liabilities, but some observable market data is

sufficiently applicable to the reported items to allow the fair values to be

estimated.



1 Notably, FASB indicates that assumptions enter into models that use Level 2 inputs, a condition that reduces the precision of the outputs

(estimated fair values), but nonetheless produces reliable

numbers that are representationally faithful, verifiable and neutral



1 Despite being “assumptions about assumptions,” Level 3 inputs can

provide useful information about fair values (and thus future cash flows)

when they are generated legitimately and with best efforts, without any

attempt to bias users’ decisions.Slee, R



1 The FASB, after extensive discussions, has concluded that fair value is the most relevant measure

for financial instruments. In its deliberations of Statement 133, the FASB revisited that issue and again

renewed its commitment to eventually measuring all financial

instruments at fair value. https://store.theartofservice.com/the-fair-value-toolkit.html

Fair value

1 In accountancy|accounting and economics, 'fair value' is a rational and unbiased Prediction|estimate of the potential market price of a good,

service, or asset. It takes into account such objective factors as:


Fair value

1 If the owners wanted to put a fair value measurement on the kitchen it

would be a subjective estimate because there is no active market for

such items or items similar to this one


Center for Audit Quality - Fair value accounting

1 The CAQ strongly defended fair value (or mark-to-market) accounting

standards against calls for suspending the practice in the

aftermath of the economic crisis in 2008 and 2009. CAQ Executive Director Cindy Fornelli sent a

September 2008 letter to members of Congress stating that proposals to

suspend fair value “are not in the best interest of investors or the capital markets and should be

rejected.”



1 The CAQ collaborated with investor groups, including the Council of

Institutional Investors, CFA Institute and Consumer Federation of America, to oppose calls for

suspending fair value accounting. In a joint letter in February 2009, the

four organizations applauded Congressional efforts to restore investor confidence in the U.S. capital markets, but cautioned

against a retreat from fair value.http://www.thecaq.org/newsroom/pdfs/20090213CAQCIICFACongress

FairValueletter.pdf



1 In March 2009, Fornelli urged members of the House Financial

Services Committee’s Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises

to reject calls for suspending fair value accounting during a March

2009 hearing.http://www.marketwatch.com

/story/mark-markets-junk-could-become-treasurehttps://store.theartofservice.com/the-fair-value-toolkit.html

Fair value accounting

1 Fair value accounting has been a part of Generally Accepted Accounting Principles

(United States)|Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the gold standard in some

circles.[http://www.bloomberg.com/news/2012-05-02/mark-to-market-accounts-

signal-caution-for-investors.html Mark to market accounts


International Financial Reporting Standards requirements - Fair value

1 Fair value is the amount for which an asset could be exchanged, or a

liability settled, between knowledgeable, willing parties in an arm's length transaction (IFRS1 App

A).


For More Information, Visit:

• https://store.theartofservice.com/the-fair-value-toolkit.html

The Art of Servicehttps://store.theartofservice.com





Fair Value .

Documents

Transcript of Fair Value .