Mark to Market Costing Essay

474 WordsNov 13, 20142 Pages
Mark to Market Costing With the development of modern technology, the world is getting smaller as the globalization taking place. Many corporations therefore no longer use the historic costing as the only method when making their financial statements. They prefer the mark to market costing because of its high relevance to all incurring transactions. As far as I’m concerned, however, I don’t think it should be the only method to be used. In other words, the standard setters shouldn’t require that all financial assets and liabilities be valued at their fair value. First, the assumption that the market can always best describe the value of an asset is too ideal to be totally applicable. The problem of the mark to market costing can not be discovered until there are some changes in the market. For example, when the investors get the indication that the value of securities they are holding is going to decline, they may most likely sell them at a very low price. That would definitely hurt both the corporation who issued the securities and the investors a lot if the information was later proved to be unreal. Second, the use of fair value overestimates accountants’ ability of making the right decision of assets’ value. The standard setters put assets which are being recorded at their fair value into 3 levels in which the third level consists of assets that accountants cannot estimate based on their experience since there is no former transaction alike. As a result, the records with their fair value on the financial statements may be significantly different from the truth. Another problem related to accountants is that they may intentionally change the assets and liabilities’ fair value in order to make the profit seem higher. Third, the mark to market costing is based on the going-concern assumption which means the company is willing to keep on operating and

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