Complete 4 page APA formatted essay: The Valuation of Assets (and/or Liabilities) in Financial Reporting An Ethical Question.Download file to see previous pages... Due to such a function, financial st

Complete 4 page APA formatted essay: The Valuation of Assets (and/or Liabilities) in Financial Reporting An Ethical Question.

Due to such a function, financial statements are vitally important both from a trust as well as an ethical standpoint. Ultimately, two approaches underlie the approach that a firm/entity/business/organization can leverage as a means of approaching this issue. Both of these perspectives will be analyzed and elaborated upon within this brief analysis as a means of impressing upon the reader which ethical perspective is the most ethical and why it should be pursued. As such, the two perspectives which will be discussed are whether it is ethical and appropriate to allow management of the firm to present financial information in a “flexible” manner so that the “dips” and “lows” of a business are not directly translated via each and every market pressure. The rationale behind this is that without such an approach a freely floating publicly traded firm could quickly lose the trust of its investors and see an overnight loss of a very large percentage of its overall assets merely due to the fact that the stakeholders inferred that the company was somehow troubled. whether an understanding was legitimate or not (Mitra et al 159). Similarly, perspective two is much simpler and merely states that firms should use a conservative accounting approach so that the “highs” of a firm are minimized in favor of presenting a more moderate expectation of profits or growth. regardless of the scenario or outcome. As such, both of these perspectives will be presented in a greater degree of depth and a definitive determination will be made with regards to which approach is the more ethical and salient towards applying within the world of accounting and financial statements. Perspective # 1 Those that put forward the benefits of the first approach necessarily see the benefit of having a “flexibility” with regards to what financial information is presented to the stakeholders. both within and without of a business entity. Although restricting many activities, the FASB of 2007 does not restrict the means by which a firm can engage in a flexible approach to accounting (Palmon et al 169). This allows a firm to adjust its reporting metrics so that room for growth, changes in the competition structure, or other difficulties can be assuaged by utilizing legal but alternative methods of financial analysis and reporting standards. However, the GAAP itself strictly prohibits any and all accounting approaches that would seek to write up of fair value assets or any other accounting practice that seeks merely to dispel relevant information in light of pressing needs. Fair value accounting requires or allows firms to report certain types of assets and liabilities, usually financial instruments like stock or debt securities, at the price estimates the firm would receive if it sold the assets today, or the price it would pay to be relieved today of its liabilities (Heyward 5). Mark-to-market accounting is a commonly used name for fair value accounting. This “current value” approach can be beneficial to a firm that finds that the current value of these assets reflects positively as compared to alternative financial reporting structures. With fair value accounting, firms report a loss on their financial statements when their assets decrease in fair value or their liabilities experience an increase. This causes changes to the equity reported on a company's balance sheet, and may also cause changes in the net income reported on its income statement.