Sample Essay

The areas of agreement with the article are stated here, the first of which is Investors and regulatory bodies alike view some components of fair value accounting as unrealistic and misleading. Secondly, it would be quite beneficial to financial statement users if managers disclosed the impacts of changing level 3 inputs on financial statements. It is also true that stakeholders pressurize standard setting bodies to amend standards related to fair value so disclosed values can be more transparent.

The current practice of measuring level 3 assets on assumptions can lead to manipulation of financial statements. The application of new fair value standards would be quite costly as managers would have to focus more on several input variables rather than applying a single input to measure fair values of level 3 assets.

The points of disagreement with the article include the following areas. First of all it is outlined in the article that the transparency of financial statements would be increased by applying the proposed methods of the FASB but it should be considered that the calculation may become quite complicated as a sensitivity analysis of the input variables with respect to asset values would have to be carried out and disclosed. Another significant point not expressed in the article is the complexity of financial statements after significant disclosure of level 3 assets and problems that could arise out of misinterpretation of variables. The need for amendments is quite necessary but the article does not mention any recommendations to FASB for guidance and interpretations to managers for estimating level 3 variables.

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