Measurement in Financial Recording research paper:
In the recent past there has been a strong a desire and need for reforms in the manner in which accounting of financial instruments and statements is done. This has come as a result of a number of developments in the market. These developments have mainly been characterised by diverse financial innovations, which have blurred the establishment of a clear distinction between the existing financial instruments. Consequently, this has contributed to developing markets for those instruments that have been traditionally considered as non tradable and illiquid (Enria et al, 2004). There has also been evident disappearance of the rationale of the existing diverse accounting treatment that is related to securities, banking and insurance services. This is because they all cover and serve similar economic function.
There have been two major approaches which have been recommended in the previous decade as being essential in line with measurements in financial accounting. The first recommendation is anchored on methods of valuation in accordance to past transaction which is referred to as Historical Cost analysis. Second argument is based on the current existing market value, which is referred to as Fair Value Accounting. The Historical based approach has been a fundamental part of America’s accounting systems. Through this approach, assets are always presented on a balance sheet, in terms of their value at the time when they were being acquired, which is essentially the use of purchase cost….