Corporate failure prediction methods Essay Example | Topics and Well Written Essays - 1000 words

Corporate failure prediction methods - Essay Example Fair value accounting refers to a financial reporting method under the Generally Accepted Accounting Principles (GAAP) the method allows companies to measure as well as report the value of assets and liabilities on the basis of their actual or estimated fair market prices. Some of the advantages of fair value accounting include the fact that it provides a more accurate valuation of assets and liabilities. Therefore, it accurately relates the value of assets and the market price. The method also limits a company’s ability to manipulate its reported net income hence leading to the portrayal of true income. It is timely in nature owing to the fact that it reports gains or losses on assets in the period that they occur. One of its disadvantages is that it may adversely affect the market conditions in a negative way. The lower value of an asset after revaluation may lead to a fall in the prices of all related assets thus affecting the market negatively. The method may also result i n a number of challenges to firms as well as to the users of the reported financial information. The market conditions in which a given asset and liability is traded may fluctuate in many occasions and become more volatile in some situations (Cooper, 2007, 17-18). On the other hand, historical cost accounting is a technique that values assets and liabilities at the price paid during its acquisition. Revenues, assets, and expenditures are recorded based on their time of acquisition. Revenues are recorded based on their time of acquisition.