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Ac505

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According to FASB, This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice.
The argument behind the use of present value techniques is that more relevant information is produced due to factoring in the uncertainties and risks associated with the amount and timing of cash flows. This form of accounting measurement is designed to capture the economic substance of a set of cash flows in a manner similar to that of how the market behaves. Present value techniques attempt to measure assets (or liabilities) at their fair value. Present value in accounting measurements argues that its application results in a decrease in the reliability of accounting information. A present value calculation requires numerous estimates regarding the timing and amount of future cash flows, interest rates, and economic conditions. The use of these estimates is seen as a threat to the reliability of accounting information either through differing opinions as to future conditions (decreased verifiability of estimates), or through the introduction of bias in estimates (decreased neutrality). In the exposure draft, FASB has taken the position that the use of present value techniques should result in more relevant information being provided to financial statement users without sufficiently damaging the reliability of the information.
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