Question

Under current U.S. GAAP companies may opt to report financial assets and liabilities at fair value....

Under current U.S. GAAP companies may opt to report financial assets and liabilities at fair value.

Team Debate:

Team 1: Present arguments in favor of the fair value option for financial assets and liabilities

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Answer #1

Answer:

The fair value option:

GAAP allows the treatment of recording the financial instruments at the fair value. This option is called the fair value option. The items that are included in the fair value option are:

  • A financial asset or financial liability
  • A loan commitment
  • Financial instruments in a firm commitment etc.,

There are few exceptions regarding the financial asset or financial liability. They are as follows:

Exceptions
Investment in a subsidiary
Interest in a viable interest entity
Post-Employment Benefits
ESOP's
Deferred Compensation Arrangements (Defined in FASB statements No. 35)
Financial Assets and Liabilities under leases (FASB Statement No. 13)
Deposit Liabilities (Withdrawable on Demand)
Financial Instruments that forms part of shareholder's equity section
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