THE CONCEPT OF FAIR VALUE FOR ASSETS AND LIABILITIES

Abstract

Currently, in order to standardize Thailand’s accounting, the concept of accounting record is altered from using the Historical Cost concept to use the Fair Value concept by Federation of Accounting Professions Under the Royal Patronage of His Majesty the King. This concept has been adjusted by adopting the standard of Financial Accounting Standards Board (FASB) and International Accounting Standards Committee (IASC). Federation of Accounting Professions Under the Royal Patronage of His Majesty the King announced the accounting standards related to the fair value of assets and liabilities such as IAS No.16 - plant property and equipment, IAS No 34 ( previous issue ) - accounting for troubled debt restructurings, IAS No.36 - impairment of assets, IAS No40( previous issue ) - accounting for investment in debt securities and equity securities, IFRS No.3 - business combinations, IAS No.32 - financial instruments presentation, IAS No.38 - intangible assets, IAS No.41 - agriculture and IAS No.40 - investment property. These accounting standards contain the guideline to apply the fair value of assets and liabilities which are determined by liquidity market price, the latest market price of the followed level, similar assets or liabilities’ market price, comparable price and present value of estimated future net cash flow. In case of many fair value of assets and liabilities in the financial statement are estimated, the fair value or adjusted market price which is very fluctuated maybe significantly effect to the change of assets and liabilities’ value. So, if the fair value couldn’t be approximated, the concept of entry value of assets, exit value and value-in-use price can be replaced. The result of using fair value in accounting and reporting impacts to financial users’ decision and also reflects the real economic changes. In addition, it can help the firm to forecast the future profit than using the historical cost because the fair value is always updated and can be reasonably audited. Although the fair value is the estimated value, financial users can utilize the financial data for forecasting the future problem. However, the using of historical cost for some assets and liabilities will make the balance sheet partly present some of fair value. In case of impairment of assets, it must prove the impairment of assets by comparing the book value with the present value of estimated future cash flows or comparing between net recoverable value and book value. If book value is more than the present value of estimated future cash flows or higher than net recoverable value, it is means that the assets are impaired.