However, with the increasing complexity of economic activities, a large number of mergers, reorganizations and joint ventures make the value of assets change frequently; During the period of inflation, the currency value changed dramatically, which made the historical cost measurement of each period lose comparability; The continuous innovation of financial instruments such as options and futures poses new challenges to traditional accounting measurement; Implicit assets such as goodwill and human resources are becoming more and more important in some enterprises. This has a great influence on the historical cost, and its own defects are undoubtedly exposed. Fair value is put forward because historical cost can't meet the needs of new economic form, and its application embodies the principle that accounting essence is more important than form. It is not difficult to find that fair value accounting practice represents the international trend of accounting development. The International Accounting Standards Committee (ISAC) defines fair value in Standard No.32 issued in 1995 as the amount between two parties who are familiar with the situation and are willing to exchange assets or pay off debts on the basis of fair trade.
Fair value is also defined in other countries' accounting standards. For example, the British Accounting Standards Board (ASB) pointed out in Financial Standards No.7; Fair value refers to the amount of assets or liabilities exchanged by two willing parties who are familiar with the situation in fair rather than compulsory or liquidation sales; The Financial Accounting Standards Committee (FASB) clearly pointed out in the Financial Accounting Standards No.7; The fair value of an asset or liability refers to the amount that an asset (or liability) can buy (or occur) or sell (or pay off) in the current transaction voluntarily by both parties, that is, it is not in compulsory or liquidation sales.
In February 2006, China promulgated the new accounting standards for business enterprises, which clearly stipulated that fair value should be regarded as a measurement attribute in the basic standards and defined it.
The above-mentioned countries have different expressions of fair value, but it is obviously based on the assumption that the enterprise is in a state of going concern and does not intend or need liquidation, does not intend to significantly reduce its business scale, or conducts transactions under unfavorable conditions. Therefore, the fair value is based on voluntary transactions, and the transaction amount is fair. The estimation of fair value should first determine whether it is a single asset or liability item or a collection of them (such as a group of assets or a group of loans). Fair value can be estimated by market method, income method or cost method.
Market method mainly refers to market price information, that is, the prices of the same, similar or comparable assets or liabilities that can be observed in real market transactions. If this information can be observed in an active market, it should be estimated as much as possible.
Income method is a method to convert future investments (such as cash flow and profits) into present value through discount (FASB concept No.7 has a detailed explanation).
Cost method generally refers to making necessary adjustments based on the replacement cost or current cost of an asset (if the asset in use has suffered material, natural and spiritual losses, it should be adjusted).
Based on the above, fair value estimation can be divided into three main levels:
The first kind of estimation refers to the quotation information of the same assets or liabilities in an active market. The fair value estimated by the quotation information used. Class I forecast reference market is the highest priority market, and it is an active market that enterprises can enter immediately. In particular, if an enterprise can immediately enter multiple markets instead of an active market, and the multiple markets and prices are different, then, for the purchase of assets, under the condition of making various quotations for the same asset, the net assets that can be received at present can be maximized, while for paying off a debt, the net cash payment can be minimized because of the different prices.
The second level estimation: refers to the quotation of similar assets (liabilities) that are different in the active market. This similar quotation can be used to estimate the fair value, but the difference between the same or similar should be adjusted.
Grade III estimation: When grade I and grade II estimation are impossible. Then the third kind of estimation is applied. The methods used in the third-level estimation include the aforementioned market method, income method and cost method.
Under fair value measurement, assets and liabilities are measured according to the amount of assets exchange or debt settlement voluntarily conducted by both parties familiar with the situation in fair trade.
Fair value is essentially an evaluation based on market information, which reflects a basis for both parties to exchange assets or pay off debts in a fair transaction. Different from historical cost, current cost, current market price and net realizable value, the amount of fair value can be directly determined by observing market price. For the particularity of determining the amount of fair value, Professor Ge Jiashu concluded: "Generally, reasonable estimation is needed, and it is difficult to measure it reliably. It is necessary to find a measurement attribute that can be reliably measured and can be specifically grasped as its representative. "
In the case of market transaction price, the exchange price is the fair value market, and the price is the signal to transmit information. The market determines different exchange prices according to the risks and benefits of different assets. Therefore, the market price is the understanding formed by all market participants after fully considering the future cash flow and uncertain risk of an asset or liability. If there is no evidence to the contrary that the transaction is unfair or involuntary, the market transaction price is the fair value of the asset or liability. In some cases, the management or insiders of the accounting entity have more detailed information about some assets or liabilities, which shows that the market transaction price deviates from the true value of these assets or liabilities (more or less). Most scholars believe that some assets or liabilities cannot be re-measured without applying the actual market transaction price, and the initial recognition value cannot be changed. If market value is replaced by subjective value judgments of different subjects, the reliability of accounting information will be difficult to guarantee; Moreover, different accounting entities have different information, so it is difficult to unify the standards and the information obtained is not comparable.
In the absence of actual transactions, other measurement methods must be adopted. The first consideration is to know whether there are similar transactions in the market, and if there are, the price of similar transactions will be used as the measurement basis. For example, when accepting stock donations, the current trading price of market stocks should be adopted.
Fair value measurement of financial instruments
In recent years, many financial instruments and derivative financial instruments have appeared in China financial market, such as warrants and their innovative products, short-term financing bills, asset securitization products, bond forward transactions, asset-backed notes (ABCP) and so on. Because the market price of finance and financial derivatives may change greatly in a short period of time, other methods such as historical cost method can not correctly reflect their market value, but fair value can better reflect their market value. With the introduction of various financial instruments and derivative financial instruments, it is becoming more and more important to study the accounting measurement of financial enterprises. How to initially confirm and measure, follow-up measurement, final valuation and impairment become unavoidable problems. In addition, with the market-oriented reform of China's exchange rate and interest rate, the exchange rate and interest rate will float freely within a certain range. Financial enterprises urgently need to avoid risks through various financial instruments and derivative financial instruments, and hedging has become an ideal choice. In view of this, the new standard issued four standards related to financial instruments, namely, Accounting Standards for Business Enterprises No.22 Recognition and Measurement of Financial Instruments, No.23 Transfer of Financial Assets, No.24 Hedging and No.37 Presentation of Financial Instruments. These standards all involve the application of fair value in financial instruments.
It can be seen from the provisions of the new standard No.22 "Recognition and Measurement of Financial Instruments" that the new accounting standard takes fair value as the standard in the initial recognition and measurement, subsequent measurement, final evaluation and impairment of financial instruments, and its essence is to measure tradable and available-for-sale financial assets or liabilities at fair value. This can better reflect the real financial situation and operating results of enterprises, thus meeting the needs of decision-making of users of accounting reports. For trading financial assets, they are measured at cost when acquired, and subsequently measured at fair value at the end of the period, and changes in fair value are included in current profits and losses. According to this regulation, the short-term stock investment of listed companies will no longer be measured by the original method of lower cost or market price, but by the market price method. For available-for-sale financial assets, enterprises are required to measure at fair value, and changes in fair value are included in equity. In terms of derivative financial instruments, the new standard stipulates that all derivative financial instruments should be measured at fair value and transferred from off-balance sheet disclosure to on-balance sheet reflection.
Fair value measurement of investment real estate
With the development of economy and the change of investment concept, investing in real estate or property projects has gradually become a fashion. However, after several years, the market value of investment real estate often exceeds its book value. At the same time, investment real estate generally has the characteristics of large amount, long cycle, poor liquidity and liquidity, and usually has high risks and high returns. Therefore, for investment real estate, if it is depreciated as a general fixed asset, its net value often cannot reflect the true value of investment real estate. Similarly, it is not appropriate to price current assets according to the principle of lower cost or market price. In this case, in order to standardize the recognition and measurement of investment real estate and the disclosure of relevant information, the Ministry of Finance issued the Accounting Standards for Enterprises No.3-Investment Real Estate separately in the new standards.
The new standard stipulates that enterprises can choose cost model and fair value model to measure investment real estate in the future. When there is conclusive evidence that the fair value of investment real estate can be obtained continuously and reliably, enterprises can adopt the fair value model to carry out subsequent measurement of investment real estate. If the fair value model is adopted for measurement, the investment real estate shall not be depreciated or amortized, but its book value shall be adjusted based on the fair value of the investment real estate on the balance sheet date, and the difference between the fair value and the original book value shall be included in the current profit and loss. Once the measurement mode of investment real estate is determined, the enterprise shall not change it at will. Changing from cost model to fair value model is regarded as a change of accounting policy. Investment real estate that has been measured by the fair value model shall not be changed from the fair value model to the cost model. It also provides relevant handling principles for the conversion of investment real estate and other assets. The advantages of fair value are as follows:
First, the property of fair value measurement is conducive to the capital preservation of enterprises. Adopting fair value as the measurement attribute conforms to the theory of material capital maintenance. According to this theory, in order to maintain simple reproduction and expand reproduction, enterprises must repurchase the production capacity consumed in the production process. If historical cost measurement is adopted, in the economic environment of rising prices, the measured amount will not be able to buy back the original production capacity of the corresponding scale, and the production of enterprises can only be carried out in a shrinking state. If it is measured by fair value, no matter when the production capacity is consumed, it is measured according to the current market price or the present value of future cash flow. Even in the environment of rising prices, the measured amount can buy back the original production capacity of the corresponding scale, the physical capital of the enterprise will be maintained, and production will be carried out under normal conditions.
Second, the measurement attribute of fair value conforms to the matching principle. The matching principle usually refers to the matching of income with its related costs and expenses. If the historical cost method is adopted, the income is measured at fair value and the expenses are measured at historical cost. Although the units of measurement are all measured in currency, the measurement attributes are different. In order to make accounting conform to the matching principle, fair value measurement is required in accounting, which can better reflect the requirements of accounting principles such as relevance and robustness.
Third, the fair value measurement attribute can truly reflect the operating results of enterprises. The calculation of enterprise profit is carried out through the ratio of income to related costs and expenses. Income is measured at current price, and cost is measured at historical cost. When the price rises, the profit of the enterprise includes not only the real operating performance of the enterprise management authorities, but also the holding income brought about by the price change. Using two different measurement methods is not conducive to the correct evaluation of the operating results of enterprises, but it is obviously more scientific and reasonable to use fair value measurement for income, cost and expenses.
Fourthly, the measurement attribute of fair value can improve the decision-making usefulness of financial information. When the price rises, in the balance sheet based on historical cost, non-monetary assets and liabilities will be underestimated except monetary items. This kind of statement can't reveal the real financial situation of the enterprise, and may be irrelevant or even useless to decision-making. Compared with historical cost, fair value can accurately disclose the cash flow obtained by enterprises, more accurately reflect the operating ability, solvency and financial risks of enterprises, and provide more powerful support for the operation and decision-making of information users.
In accounting measurement, fair value is the measurement attribute, and the discounted value of uncertain future cash flow is the measurement attribute. This kind of information may meet the quality characteristics of relevance, but it does not meet the requirements of reliability to some extent. The reason for this is the following：
First, in the absence of market transaction price, as a present value technology to estimate fair value, it is difficult to operate in accounting measurement. FASB pointed out that when using present value technology to estimate fair value in initial confirmation and new starting point measurement, it should be able to capture various factors affecting fair value: ① estimation of future cash flow; ② Anticipation of possible changes in the amount and time of these cash flows; ③ Time value of money expressed by risk-free interest rate; ④ Uncertainty contained in assets or liabilities; ⑤ Other difficulties that are difficult to identify. In fact, it is extremely difficult to capture the above elements.
Second, it is difficult to achieve fair trade in the real economic environment. Fair value is determined by both parties on the basis of fair trade, and the fairness of trade is affected by many factors. If the transaction itself is unfair, then the resulting transaction price cannot be called fair value.
Third, the comparability of accounting information is poor. Because different trading entities have different information, different forecasts for the future and different market activities, it is difficult to get the same fair value for transactions with the same nature and measurement, thus reducing the comparability of accounting information among different accounting entities.
Fourth, it may become a tool for management to manipulate profits. Fair value is not easy to operate and has certain subjectivity, so it is difficult to achieve "fairness" in value measurement, which may become a legal tool for management to manipulate profits.
Fifth, the cost of accounting information quality is too high, which does not conform to the principle of cost-effectiveness. Compared with historical cost, the cost of obtaining fair value is higher, which increases the cost of preparing statements and violates the cost-benefit principle of accounting.