Fair Value Accounting Under IFRS & Asset Impairments: The Recession of 2008-2009

Fair Value Accounting
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Fair Value Accounting
Question 1
IFRS 13 is a valuation method that assigns a price to an asset, liability or equity to what would otherwise be obtained or paid to execute the same transaction in an arm strength business transaction. In this regard, IFRS 13 takes precedence over other IFRS fair value measurement standards given that it is one of the most current and updated standards (Ahmed, Chalmers & Khlif, 2013). However, the potential interaction of IFRS with other standards is the fact that they aim at similar objectives of ensuring that the price for the settlement of a transaction is arrived at reliably under the prevailing market situations.
There are increased disclosure requirements under IFRS 13 to reflect more accurate and verifiable accounting of business transactions. For example, the standards provide that transactions should be divided into phases based on their level of activity in the market. Level one inputs are required for the prices of transactions in very active markets while the level three for the least active markets (Ahmed, Chalmers & Khlif, 2013). In the active markets, the prices can be established reliably, unlike the least active markets. Through such division, IFRS ensures that more time is devoted to the determination of prices in less active markets thus guaranteeing appropriate pricing.
Question 2
The main problems that an entity may encounter with IFRS include the determination of when markets should be considered active.

Thus, dividing the assets, liabilities or equities into the phases presents significant challenges to the entity (Ahmed, Chalmers & Khlif, 2013). Ineffective disclosures may also give a problem especially when a large number of items are involved, and this presents challenges to the organization in determining the appropriate value of transactions. In inactive markets, it also becomes difficult to determine the fair values of accounting transactions.
An alternative to using to value transactions when markets are inactive include utilizing internal information such as the value of quoted in investments to determine the appropriate valuation of the transactions (Ahmed, Chalmers & Khlif, 2013). The inputs of organizational staffs may also be useful in the valuation of the transactions involving the assets, liabilities, and equities.
Question 3
From the e-activity, the disclosure notes of Nestle Corporation appears to be the most informative to the stakeholders. The reason for this position is that the notes of Nestle are divided into numerous sections each note talking about a particular aspect. From the financial report, the notes are conspicuous and arranged in the form of note 1, note 2, note three among others which makes them easy to read and understand. This is unlike other companies which provide aggregations of statements which serve as the notes. In this regard, an investor is more likely to read and understand the notes for each item to the financial statement of Nestle compared to other companies.
Question 4
The main difference between the impairment testing regarding goodwill and other assets is that in the former, the impairment of goodwill is determined through the cash generating units. Impaired goodwill is apportioned to the asset units generating cash on an ongoing basis to reduce the value regarding the asset (Hulzen et al., 2016). On the other hand, the impairment testing for other assets involves determining their carrying amounts and the recoverable amount. If the carrying amount is higher than the recoverable amount, then the asset is recognized as impaired and vice versa. In this regard, given that goodwill is an intangible asset, the aspect of impairment allocation to other assets makes it different from other asset’s impairment testing. The purpose of the differences in impairment testing of goodwill and other assets is to maintain that assets are put and recorded at the appropriate value and also facilitate appropriate valuation.
References
Ahmed, K., Chalmers, K., & Khlif, H. (2013). A meta-analysis of IFRS adoption effects. The International Journal of Accounting, 48(2), 173-217.
Hulzen, P. V., Alfonso, L., Georgakopoulos, G., & Sotiropoulos, I. (2011). Amortisation versus Impairment of Goodwill and Accounting Quality. International Journal of Economic Sciences & Applied Research, 4(3).