A Study On Fair Value And Its Application

Measurement is one of the core parts of accounting. Traditional accounting model is based on historical cost measurement. But since 1970's, especially 1990's, great changes have taken place in accounting environment and traditional measurement model can't meet the need of economic development any more. So the traditional measurement model is required to be modified, and even to be innovated. To adapt these changes, some accounting standards making organizations brought forward a new kind of measurement model which is named 'fair value' and applied and popularized it to new issues accounting standards step by step.Some particular standards which were published by our ministry of finance in 1998 referred fair value, but owing to the limitation of our countries' situation such as our economic market doesn't highly developed, related law isn't round and some senior managers and accouters are lack of the professional ethics, the new concept was abused and was even used illegally to get interests by some managers and accouters. This brought difficulties for using fair value. Our ministry of finance reduced and limited the use of fair value in accounting standards which were published in 2001.But nowadays in the environment of innovation of market and finance, especially the transaction of derivatives made the historical cost useless and fair value has become the only interrelated measurement attribute. It was obvious that the avoidance of fair value wasn't conformed to international trend. Under this background, our ministry of finance published a new set of accounting standards on 15th, Feb, 2006 which brought fair value.The all-around use of fair value in our new set of accounting standards reflects our press for establishing a complete set of accounting standards to realize economy integration after our entry into WTO; and it also reflects the trend that our accounting standards is getting to realize internationalization. However, the use of fair value still faces a lot of problems including how to prevent management control profit, how to set up a market environment matching fair value and consummating mechanisms of supervision and evaluation.The thesis studies the definition, essence of fair value and its relationship with other measurement attributes and the theoretical basis of it for the following study. Meanwhile, the thesis introduces development and application of fair value abroad and inland, especially studies the process of the use of fair value in our country and the background of its application in order to place the thesis under the clear development background. By analyzing the influences which the application of fair value will bring to the new accounting standards, especially the application of fair value in some particular standards: 'real estate for investment', none-monetary asset swap' and standards related with financial instruments to summarize influences which the fair value will bring to enterprises and investors. At last, as the application of fair value still need to be perfected and there exists difficulties in application, so the thesis gives some suggestions.The thesis is divided into five chapters:Chapter one, the introduction, this part mainly discusses the study meaning and background of the thesis and introduces innovation of the thesis.Chapter two, the basic theory of fair value. It concludes four parts which introducing: the definition of accounting measurement and measurement attribute by different institutions, five kinds of measurement attribute in our new accounting standards; studying the essence of fair value; three basic characteristics of fair value and its relationship with other measurement attributes.Chapter three, theoretical basics of fair value measurement attribute. This chapter is divided into three parts which includes three theoretical basics.Chapter four, the application of the fair value abroad and in China and it includes four parts. The third part reviews the use of fair value before the new principle. The last part compares the new and old standards about fair value in some particular items and analyzing its influences.Chapter five, some issues about carrying out fair value in our country. It is divided into two parts: studying some existing difficulties by using fair value and giving out some suggestions.