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1Fair value management is for specific asset, so the measurement should consider the feature of the asset. For instance, the location and condition of the asset and limitations on its sale or use, if market participants take into considerations on those features when determining the price for the asset during the measurement date. The asset might be an impartial asset, for example an operating asset or a financial instrument are cash generating unit or a business are based on the unit of account approved by IFRSs applicable to the asset or group of asset.
Besides, a fair value measurement speculates that the asset is exchanged in an orderly transaction between market participations to sell the asset at the measurement date. An orderly transaction is a transaction that speculates the exposure to the market for a period before the measurement date to allow for marketing activities that are normal for transactions which involve such assets. In order to let the entity has access, the exposure draft recommends that a fair value measurement should assume that the sale of an asset involve in the most advantageous market. The market that maximises the amount that would be received to sell the asset is the most advantageous market.
Moreover, market participants are both parties which are the buyers and sellers in the most advantageous market for the asset. Those market participants are independents of each other, they are not related parties. They are full of knowledge which they are adequately learned to make an investment decision and are presumed to be as well-informed as how the reporting entity about the asset. They are able to enter into a transaction for the asset and always willing to enter into asset transaction as they are not forced or compelled to do so. For instance, the fair value of the asset has to be measured by using the assumptions that market participations would use in pricing the asset.
Furthermore, fair value is the price that would be received to sell an asset at the exit price no matter the price is precisely observable or estimated by using a valuation method. The price used to measure the fair value of the asset should not be adjusted for those costs although the transaction costs are considered when determining the most advantageous market. Transaction costs are not a characteristic of the asset but they are particular to the transaction and will differ depending on how an entity enters into a transaction for an asset. For instance, the price in the most advantageous marker has to be adjusted for the cost, if location is a characteristic of the asset.
Other than that, highest and best use is a valuation concept used to measure many others non-financial assets like real estate. In general, the highest and best use of an asset that would maximize the value of the asset or the group of assets within which the asset would be used by market participants. Fair value considers the highest and the best use of an asset from the prospective of market participants. When applying the highest and best use concept, the exposure draft identifies two valuation premises that may be relevant when measuring the fair value of an asset. According to the board, the fair value at initial recognition should be measured in accordance with the proposals in the exposure draft, using both observable and unobservable inputs. That value should be measured without regard to whether it would result in a gain or loss at initial recognition of the asset or liability.
For instance, the produce growing on bearer biological assets have to be measured at fair value less costs to sell with changes recognized in profit and loss as the produce is growing. This kind of method will make sure that the produce growing in the ground and produce growing on a bearer biological asset would be accounted for constantly.
By giving another example, according to Koonce (2009), she state that if the company’s bought an asset for RM1000, but fall in value to RM 700, then the fair value accounting would show that investment on the financial statement of the company at RM700, not the original cost of RM1000. http://www.today.mccombs.utexas.edu/2009/02/fair-value-accounting-a-better-reflection-of-reality
2According to Financial Insight (2011), in order to reduce complexity and improve consistency and transparency in the application of fair value management principles, it required a single set of requirements for all fair value managements.
Investors and analysts mentioned about the disclosure of fair value reduce complexity and enhance the transparency of risks and risk management practices helps to build confidence in the firm’s management, which can be specifically crucial to attract equity and debt investors (Edwards 2012).
Fair values for assets reflect current market conditions and so provide timely information, thereby improve the transparency and encouraging prompt corrective actions. Fair value accounting is indeed helpful in providing transparency and leads to undesirable actions on the part of investors and analysts (Enahoro & Jayeoba 2013).
Accoding to Enahoro & Jayeoba (2013), in order to improve consistency and reduce complexity in fair value measurement and related disclosures, IFRS 13 set a fair value hierarchy that classified into three levels the inputs to valuation methods. The process of valuing an instrument to its fair value based on how easy it is to state a price for that asset. Searching the right price is important to valuation since that the fair value is the price at which a willing seller and buyer agree to do the transactions. Enahoro & Jayeoba (2013) also state that the investors and analysts want fair value information so that they can have a better determination on the true value of their investment. In other words, to manage the exposure on a fair value basis, investors and analysts need to lesser use of fair value to reduce the complexity.
According to John and Goind (2012), an entity should disclose information that helps investors and analysts of its financial statements assess for assets that are measured at fair value on a recurring or non-recurring basis in the balance sheet after initial recognition.
In contrast, 9 out of 17 of French agricultural companies which required by law that adopt IAS 41 rebut that the fair values can be determined with reliability, so they justifying by using historical cost and avoiding the onerous measurement requirements of the standard (Elad & Herbohn 2011). The reason behind is because accountants and auditors agreed that the fair value accounting will increase the fluctuation of profit of a company. That is why some of the agricultural company prefer to prepare impartial statements which are not depend on MFRS 141, so that separating the effect of revaluing the assets at fair value.
In short, it is good to adopt the fair value measurement principles, because it can reduce complexity, improve consistency and transparency to build confidence in the firm’s management and reflect current market conditions.
In this case, the impact of the reducing number of fish stocks consumption will bring a huge effect to Ocean Berhad. For example, low demand of fish stock consumption which will directly affect the sales decrease and at the same time the margin of the company will decrease as well. Therefore, the low growth on the biological assets should be measured at fair value less costs to sell with changes recognized in statement of comprehensive income as the produce grows is low.
Based on the fair value measurement principle, reducing number of fish stocks for consumptions will bring impact to the financial statement of Ocean Berhad. Due to the low demand consumption of fish stock, which lead to decrease in fair value as well. When this case occur, Ocean Berhad have to do adjustment on the asset in their financial statement. First of all, the value of the assets will not record as the same value as previous year since that the fair value of the fish stocks became different due to the low demand of fish consumption and supply. Since that the fair value of current year had been drop so the difference of the fair value between current year and previous will record as loss in the income statement. Meanwhile, the net book value of the asset will be decrease as well.
In order to increase awareness about the threat to the fisheries’ sustainability, company’s corporate social responsibility should come out a sustainable seafood guide to the public to increase their awareness. For instance, they may print out flyers, distribute shopping bags which collaborate with seafood sellers and many more. The information in the flyers may show about instead of eating shark fin, actually there are another kind of substitute food that can replace shark fin in order to maintain the quantity of shark for not extinction.
Besides, certification and the labelling of certified fish are crucial to identify that those fish are following certain minimum standard or regulations, such as sustainability, standards for quality and fair trade (Green peace 2010). Fisher and consumer awareness on sustainability will help to reduce the threats on fish stocks in order to make it continuously for future generations. Those consumers of high value markets place will pay more attention on the fish sustainable resource base and they are ready to pay increment for the conservation measures (Silva n.d.).
Those companies that always have corporate functions should use the SOS seafood guide as a reference when deciding on the food menu for their corporate functions. The company should distribute the SOS seafood guide and encourage their guests to use the guide as well. Besides, corporate social responsibility should establish a sustainable seafood dining policy by choosing seafood items in the recommended or MSC category and abstain from the “avoid” list. Therefore, CSR have to issue a memo which states that only seafood in the recommend or MSC list should be used in all the corporation functions.
Other than that, create awareness to the corporate or restaurant’s staff about the importance of conserving our oceans and distribute the seafood guide to the staffs and encourage them to select sustainable seafood in order to preserve our limited species of fish. Corporate should also ask for more sustainable seafood materials to be shared with their staffs and encourage them to look for MSC seafood as an alternative event.
Edwards.GA 2012, FSB Transparency Initiatives, viewed 13 May 2014, http://www.bde.es/f/webbde/GAP/Secciones/Publicaciones/InformesBoletinesRevistas/RevistaEstabilidadFinanciera/12/May/Fic/ref2012223.pdf
Elad, C & Herbohn, K 2011, ‘Implementing fair value accounting in the agricultural sector’, The Institute of Chartered Accountants of Scotland, viewed 13 May 2014, <file:///C:/Users/Chan/Downloads/elad_report_feb_2011%20(2).pdf >
Enahoro. JA & Jayeoba.J 2013, ‘Value Management and Disclosures in Fair Value Accounting’, Asian Economic and Financial Review, viewed 13 May 2014, <http://www.aessweb.com/pdf-files/3(9) 1170-1179.pdf >
Financial Insight 2011, IFRS 13 Fair Value Management, viewed 13 May 2014, http://www.rsmi.com.au/rsbcwr/_assets/main/lib90014/110728_financialinsight_ifrs%2013%20web.pdf
John, M & Goind, RK 2012. ‘Fair value measurement under ifrs 13’, Financial Reporting Accountancy Ireland, 44(4)
Greenpeace 2010, Sustainable seafood, viewed 13 May 2014, <www.greenpeace.org/usa/en/campaigns/oceans/seafood/certification>
Silva n.d., Value chain of Fish and Fishery products: Origin, Functions and Application in Developed and Developing country market, viewed 13 May 2014, <https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CDoQFjAC&url=http://www.fao.org/fileadmin/user_upload/fisheries/docs/VALUE_CHAIN-report1.doc&ei=hcVxU6PVGcmHuASXiYCIAw&usg=AFQjCNHWo9XIn42irh9lPBzSGQusNrSFSw&sig2=LY9sBQP1Yn5onMO4yW9DlA>