Time Value of Money and Fair Value Accounting

Fair values are more common in financial reports because fair values have increased in

business importance in recent years. Increasingly elaborate financial instruments and

risk management practices have created financial statement elements for which

historical cost is almost irrelevant, and fair value, and fluctuations in fair value, are

extremely relevant.

According to the FASB’s recent guidance on fair value measurements ASC820-

10-5 (FAS-157, Fair Value Measurements), Level 3 hierarchy accepts fair values estimates based on present value of expected future cash flows. Furthermore, CPAs must have a working knowledge of future value and present value concepts because of their application to numerous types of business events and transactions which require

proper valuation and presentation.

Time value of money is also a critical consideration in financial and investment

decisions. For example, compound interest calculations are needed to determine future

sums of money resulting from an investment. Discounting is used to evaluate the future

cash flow associated with capital budgeting projects. This book aims at presenting the

time value tools and techniques that are necessary for fair value measurements and for

various financial decision making. Furthermore, this book is a comprehensive survey

of fair value accounting with a discussion of : (1) ASC 820, Fair Value Measurements

and Disclosures, (2) A list of the financial statement items for which fair value reporting

is required or allowed. (3) A variety of valuation models, and (4) Fair value disclosure

requirements.