Fair value and accounting standard for financial instrument
Holban (Oncioiu) Ionica1, Oncioiu Florin Razvan2
1Alexandru Ioan Cuza University of Iasi and Academy of Economies Studies of Bucharest,
2University of Agronomic Sciences and Veterinary Medicine of Bucharest, email@example.com
Abstract. The measurement of assets and liabilities at fair value, with its subsequent gains or losses
recognized in profit or loss, should be limited to financial in vestments that are readily convertible into cash or
cash equivalents in active markets, and are not constrained by any business purpose. On the other hand, even
though assets and liabilities are exposed to changes in the market price, those that are expected to obtain
future funds and are constrained by some business purpose (non-financial investments) should not be
measured at fair value through profit and loss. Under the Accounting Standard for Financial Instruments, fair
value measurement is required in certain circumstances similar to IFRS o r US GAAP. This paper describes
how the fair value is used under the Standard and purposes to decide whether fair value measurement is
required or not based on the type of investment.
Keywords: measurement, assets, liabilities, market prices.
Under the Accounting Standard for Financial Instruments (IAS 39), fair value is defined as follows:
Fair value means the value fairly measured based on market prices actually transacted, or other quoted
market prices, such as indicative prices or indices (hereinafter referred to as 'market prices'). If there
are no observable market prices, rationally calculated values are used as the fair values.
Therefore, under the Accounting Standard for Financial Instruments, there are two types of fair value
used to measure financial instruments: value based upon market prices and value rationally calculated.
Furthermore, the Practical Guidelines of the Accounting Standard for Financial Instruments stipulates
fair value in detail as follows:
If financial instruments are traded in an active market, and have a quoted price in the market, such
instruments must, in principle, be measured at the fair value based on market price. Market prices are
the amounts that are either obtained from the sale, or paid for the purchase of the financial instruments
in the market.
2 The concept of fair value for financial instrument
For the following financial instruments, market prices are considered as being quoted in the market: