E.M. Sorokina
Doctor of economic Sciences, Professor.
Baikal state University of Economics and law. Russia
ASSESSMENT OF THE ORGANIZATION'S ASSETS AT FAIR VALUE
Abstract. The equivalent of a reliable assessment of the assets of the organization shall be the fair
value. The article is considered information, why in the accounting cannot be applied evaluation of the
organization's assets to fair value and a version of the submission of reliable financial information in the
financial statements.
Key words: fair value estimation of the asset, accounting, and reporting.
To investors, creditors, managers and other interested persons to forecast cash flows and financial
results, identify and assess possible risks, we need reliable information on the amount of cash, which can
be obtained in the case of the sale of the asset of the organization, or which is required for the
performance of obligations by buying it at a certain moment of time.
The initial value at which the assets were accepted for accounting purposes, for a time, until the
organization owns the assets may change significantly in comparison to their value at the time of
submission of reporting data to the interested users. A kind of equivalent of a reliable assessment is
considered to be the fair value.
In accordance with IAS 39 «Financial instruments: recognition and measurement fair value is the
amount of cash sufficient for the acquisition of an asset or performance of obligations under a transaction
between a knowledgeable, willing to accomplish such transaction, independent of each other.
From the definition formulated in the МСФО39 «Financial instruments: recognition and
measurement», it follows that the definition of fair value, provides for three obligatory conditions,
without the execution of which determine the fair value of the practice impossible.
Firstly, the deal must be struck between the parties, well informed about the existing conditions of
transactions with similar assets.
Secondly, the transaction should not be forced.
Thirdly, carrying out the transaction, the parties should be independent from each other.
If we analyze the above-mentioned conditions, we can make two conclusions. On the one hand,
the fair value provides an objective basis for assessing future cash flows in comparison with the initial
value, provides a framework for comparability of the information about the assets, best combined with the
principles of active management and contributes to the objective estimation of results of work of the
management.
On the other hand, if you use fair value as the evaluation of the assets of the organization in the
accounting records may be considerable difficulties with its definition in the absence of an active market.
They entail and the other negative point associated with the use of fair value is highly labor intensive and
large extra costs caused by necessity of attraction of professional appraisers.
As is known, all business transactions are recorded in the accounting records only on the basis of
primary documents. Such documents are formed when performing economic operations. Only their
presence gives legal effect of accounting information and provides accounting the opportunity to perform
one of its main functions - control. Taking into account that the fair value of this variable, the estimated
relative to which has not been determined yet definite formation procedure, we can make a conclusion
about inexpediency and the inadmissibility of the use of it in the present time in the accounting records as
a whole. This can be done only in exceptional cases. For example, on the sale of the organization as a
whole property complex, in the planning of the issue of securities, when obtaining a loan under the pledge
of real estate or other asset.
In our opinion, in order to ensure the interested users of reliable accounting information necessary
to use the valuation of assets at fair value when presenting the relevant data in the financial statements.
Balance sheet data should be formed on the basis of the accounting data in the assessment, which
currently can be formed in accounting, preserving the validity of the information and control functions.
Information about the fair value of the assets of the organization is to be provided in the explanatory notes
to the accounting balance sheet. Establishing the fair value of the assets in this implies a certain
calculations.
At issue arising in the evaluation of the assets of the organization, the fair value is the choice of
an indicator that the most authentically reflects this value.
There are many approaches to the definition of fair value, and, consequently, reflecting its
indicators. For example, the spokesman of the fair value can be under certain conditions, the market
value, replacement cost adjusted for depreciation, present value and other kinds of values. In foreign
practice, most often the best indicator of fair value of the asset recognize its market value. However, these
concepts are not equalized.
Market value in full degree corresponds to the notion of fair value only in the conditions of the
active market, i.e. the market in which prices are determined by supply and demand, deals are made quite
often, without coercion, and the parties involved do not depend on each other. An example of an active
market is the stock exchange.
In an inactive market fair market value can be regarded as similar, if transactions on it are made
regularly, but there is a possibility of compliance with the mandatory conditions, to determine the fair
value. An example of an inactive market may be transactions with real estate objects.
In Russian practice, the adoption of market value as a fair value in the current economic
conditions is not always justified, and sometimes impossible. The reason lies in the fact that the concept
of market value in the field of economic knowledge in General is not agreed, and that the domestic
market of many of the assets or insufficiently developed, or is absent at all.
In the Russian normative acts on accounting, the concept of the market value sometimes
unreasonably mixed with the notion of the current market value. As is known, the market value is
characterized by an interval value of the estimates, certain using a variety of methods, or the various
sources of information. The current market value is a specific price, prevailing in a particular market. In
addition, the current market value is sometimes incorrectly defined as the sum of cash, which can be
obtained as a result of the sale of assets. In practice is not always the price of purchase and sale of a
particular asset may be equivalent to the current market evaluation. For example, in the conditions of a
forced transaction or the existence of dependence between the parties to a purchase-and-sale of the asset
may be held on an individually-set prices.
For the purposes of taxation in accordance with art. 40 of the Tax code of the Russian Federation
under the market price means the price resulting from the interaction of demand and supply in the market
of identical (or-in their absence - homogeneous) goods in comparable economic and commercial
conditions. The market price is determined on the basis of official sources of information and stock
quotes. In the absence of information on transactions with similar goods are equal to the market price of
the price of subsequent sale and defined on the basis of depreciated replacement cost method. Allowed to
participate expert-appraiser to determine the value of individual types of property in certain cases.
To the greatest extent, the concept of fair value in accordance with МСФО39 «Financial
instruments: recognition and measurement» corresponds to the concept of market value, used in the
valuation activity. According to the Federal law «On valuation activities in the Russian Federation» under
market value object of evaluation is understood as the most probable price, at which the given object of
valuation can be disposed of on the open market in the conditions of competition, when the parties to the
transaction acting reasonably, having all the necessary information, and at the price of the transaction is
not recorded any emergency the circumstances, that is, when the
one of the parties of the transaction is not obliged to alienate the object of the assessment, and the
other party is not obliged to accept the performance;
the parties of the transaction are well informed about the subject of the transaction and are acting
in their own interests;
the object of the assessment is presented on the open market in the form of a public offer;
the price of the transaction represents a reasonable fee for the object of the assessment and
coercion to commit the transaction in respect of the parties to the transaction with any side was not;
payment for the object of the assessment is expressed in monetary form.
As already noted, one of the indicators of fair value may be present value. Using the method of
discounting to determine the fair value of the assets of the organization has a number of advantages.
Firstly, the method of discounting allows to overcome the «justice» only at the time of the
transaction.
Secondly, when using it, is considered the usefulness of the asset from the point of view of future
economic benefits associated with the ownership of the asset.
Third, the present value of less subject to fluctuations in market conditions, as it is based on the
factors that are most sensitive to the possible characteristics of the assets generated by the asset cash
flows in time and all kinds of risks.
The calculation of the present value of assets as a whole is carried out by a well-known formula
t
FCFn
n
n 1 (1  R )
PV  
where
PV - the current (discounted) value of assets; FCFn - predictive values of net cash flow
in the period n ; R - the discount rate; t - the duration of the evaluation period; n - the number of periods.
At the present time organization in the practical determination of the present value of the face a
number of difficulties. One of them is connected with the ambiguity of the calculation of discount rates.
The discount rate in the assessment of assets economists use the weighted average cost of capital,
the profitability of investments in the assets or return on equity, cumulative method (the method of
summation of using the risk-free rate and the risk adjustments) and others.
The most adequate method of determining the discount rate is cumulative method (the method of
summation of using the risk-free rate and the risk adjustments). This method is applicable in our country,
and therefore is used practicing appraisers.
The calculation of the discount rate cumulative method is carried out according to the formula
t
R  Rt   Rn
n 1
where R t - the risk free rate of return;
Rn - the specific risks inherent in the asset.
The rest of the symbols of the former.
When determining the risk-free rate of return, as a rule, are oriented to the securities issued by the
government of the Russian Federation.
The accuracy of calculations using the cumulative method depends on the accuracy of the
assessment of the risks inherent in the specific asset.
This allows to make a conclusion that the fair value is reliable estimate of the assets of the
organization. In theory its use in accounting will allow to satisfy the interests of different users of
accounting information. However, at the present time has not yet formed a mechanism of its
determination, which allows accounting at the same time serve and information, and the control function.
Use in the accounting practice of evaluation of the organization's assets at fair value it is advisable for the
formation of reporting data, in particular, the notes to the accounting balance sheet. The advantage in
determining the fair value of the assets of the organization at the present time is the method of
discounting.
Literature:
1. The tax code of the Russian Federation of 31.07.1998 g.
2. The Federal law «On valuation activities in the Russian Federation» of 29.06.1998 g. № 135-FZ.
3. МСФО39 «Financial instruments: recognition and measurement»
4. МСФО13 «Fair value measurements»