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The Economics and Politics of AccountingInternational Perspectives on Trends, Policy, and Practice$
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Christian Leuz, Dieter Pfaff, and Anthony Hopwood

Print publication date: 2004

Print ISBN-13: 9780199260621

Published to Oxford Scholarship Online: January 2005

DOI: 10.1093/0199260621.001.0001

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Aspects of the Future in Accounting: The Use of Market Prices and “Fair Values” in Financial Reports

Aspects of the Future in Accounting: The Use of Market Prices and “Fair Values” in Financial Reports

Chapter:
(p.32) CHAPTER 1.2 Aspects of the Future in Accounting: The Use of Market Prices and “Fair Values” in Financial Reports
Source:
The Economics and Politics of Accounting
Author(s):

Michael Bromwich (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0199260621.003.0002

Some arguments are examined for incorporating into accounting reports further estimates or predictions of the future, and items that embed future cash flows. After an introduction (Section 1), Section 2 outlines some of the common concerns of standard-setters with decision-orientated accounting (the essence of which is that accounting items should be measured using their economic values, which are founded on the cash flows they are expected to generate), and considers some of the general arguments for incorporating future-orientated accounting items into accounting reports. Looks at the strong movement toward ‘fair-value’ accounting in which asset and liability carrying values are based on the market prices that would result from arm’s length transactions between well-informed participants. In Section 3, as an example of this market value approach, some problems with suggestions for accounting for financial instruments (assets) are considered. Section 4 looks more briefly at the use of fair values with non-financial assets, and the final section gives a brief conclusion.

Keywords:   accounting, accounting reports, assets and liabilities, cash flows, decision-orientated accounting, economic values, fair values, fair-value accounting, financial assets, financial instruments, future cash flows, future-orientated accounting, market prices, market values, non-financial assets

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