Financial statements should present fairly the financial position, performance and cash flows
of a business. A specific example of the application of the `fairness' principal is the concept of
`substance over form' as defined in the International Accounting Standards Board (IASB) framework.
This necessitates that information and transaction should be considered and presented with
their reality, not just to abide by government rules and regulation but also to represent
correct information to the stakeholders. It may be reasonably assumed that complying with IFRS
will result in fair presentation.
The definition of Fair Value as given in IFRS is "The amount at which an asset could be
exchanged or a liability settled, between knowledgeable, willing parties in an arm's-length transaction."
In making the judgment, the management of an entity may also consider the most
recent pronouncements of other standard-setting bodies that use a similar conceptual framework
to develop standards, other accounting literature, and accepted industry practices, to the
extent that, these do not clash with the sources of
primary reference (i.e., the IASB Standards and interpretations
and its framework).
So, in short, the company should adopt FVM
policy for its assets and liabilities, which is commonly
invoked in various accounting standards. Currently, IFRS
does not provide specific guidance to FVM of assets
and liabilities, which leads to confusion in the minds of estimator, account writer and reader
of financial statements. |
