fair value in the case of vietnam

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FAIR VALUE IN THE CASE OF VIETNAM

DECLARATION OF ORIGINALITY AND WORD COUNT

I hereby declare that the graduation project is based on my original work except for quotations and citations which have been duly acknowledged I also declare that it has not been previously or concurrently submitted for any other course/degree at Help University College or other institutions The word count is 10,723 words

LE MAI TRANG

17 October, 2011

ACKNOWLEDGEMENT

This project would not have been made possible without the assistance, support and encouragement of many people I wish to take this opportunity to thank all the people who have helped me during the time of completing the dissertation

Firstly, I would like to express my deep gratitude to my supervisor Dr Pham Duc Hieu, International School, Vietnam National University Hanoi He has kindly helped me and supported me all the way through For that, I am very grateful

I also would like to extend my special thanks to managers, accountants, my friends, and other people who have help me to carry out the survey I want to thank them for all their support, interest and valuable hints

FAIR VALUE IN THE CASE OF VIETNAM

TABLE OF CONTENTS

DECLARATION OF ORIGINALITY AND WORD COUNT i

ACKNOWLEDGEMENT iii

ABSTRACT iv

TABLE OF CONTENTS v

LIST OF FINGURES & CHARTS viii

LIST OF ABBREVIATIONS ix

CHAPTER 1: INTRODUCTION 1

1.1. Background 2

1.2. Problem statement 3

1.3. Structure of Study 4

CHAPTER 2: LITERATURE REVIEW 6

2.1 Definition and conceptualization of Fair value 6

2.2 Fair value vs historical cost 6

2.2.1 Argument for and against HC 6

2.2.1.1 Argument for HC 6

2.2.1.2 Argument against HC 6

2.2.2 The argument for and against FVA 6

2.2.2.1 Argument for FVA 6

2.2.2.2 Arguments against FVA 6

2.3 Method to determine the FV 6

2.3.1 Valuation premise 6

2.3.2 Fair Value Hierarchy 6

2.3.3 Valuation Techniques 6

2.4.1 FVA in the USA 6

2.4.2 Application of fair value as required in the international accounting standards 6

2.5 The formation and development of FVA in Vietnam 6

2.5.1 History form 6

2.5.2 In common standard - model theory 6

2.5.3 Comparison between IAS and VAS on FVA 6

2.1. Definition and conceptualization of Fair value 7

2.2.1 Argument for and against HC 9

2.2.1.1 Argument for HC 9

2.2.1.2 Argument against HC 10

2.2.2 The argument for and against FVA 11

2.2.2.1 Argument for FVA 11

2.2.2.2 Arguments against FVA 13

2.3. Method to determine the FV 15

2.3.1 Valuation premise 15

2.3.2 Fair Value Hierarchy 15

2.3.3 Valuation Techniques 17

2.4. Practical application of FV in the world 18

2.4.1 FVA in the USA 18

2.4.2 Application of fair value as required in the international accounting standards 20 2.5. The formation and development of FVA in Vietnam 22

2.5.1 History form 22

2.5.2.1 In common standard - model theory 24

2.5.3 Comparison between IAS and VAS on FVA 26

CHAPTER 3: RESEARCH METHODOLOGY 28

3.1. Research objective 29

3.2. Research Methodology 29

3.3. Data source 29

3.3.1 Secondary data 29

3.3.2 Primary data 30

3.4. Research method 30

3.5. Research tool 31

3.6. Data collection 31

3.7. Limitations 31

4.1. Finding from accountants’ survey questionnaires 34

4.1.1 Description of Respondents’ information 34

4.1.2 Description and Analysis of respondents’ understanding about FV concept 35 4.1.3 Description and Analysis of respondents about FV recognition 36

4.2. Findings from managers & accountants interview 39

4.2.1 Disadvantages and challenge of FV in VN 39

4.2.2 Future of FV in Vietnam 40

CHAPTER 5: CONCLUSION 42

REFERENCES 44

APPENDICES: QUESTIONNAIRE 49

LIST OF FINGURES & CHARTS

Figure 2.1 List of standards require the use of fair value 22

Figure 2.2 The comparison between IAS and VAS on FVA 26

Figure 4.1 Accountant category 34

Chart 4.1 Description of Result – Question 1 35

Chart 4.2 Description of Result – Question 2 36

Chart 4.3 Description of Result – Question 3 36

Chart 4.4 Description of Result – Question 4 37

Chart 4.5 Description of Result – Question 5 38

Chart 4.6 Description of Result – Question 6 38

LIST OF ABBREVIATIONS

GAAP Generally Accepted Accounting Principles

FASB Financial Accounting Standards Board

IASB International Accounting Standards Board

IAS International Accounting Standard

VAS Vietnam Accounting Standard

IFRS International Financial Reporting Standards

SFAS Statement of Financial Accounting Standards

SEC Securities and Exchange Commission

NASDAQ National Association of Securities Dealers Automated

CHAPTER 1: INTRODUCTION

1.1 Background

1.2 Problem statement

1.3 Structure of study

1.1 Background

Historical cost accounting (HCA) is a system where liabilities and assets are presented and recorded at the monetary amount paid or the consideration given at the

time of their acquisition According to Generally Accepted Accounting Principles

(GAAP), assets and liabilities have been recording through this system People are common working with HCA because this is so conventional method However, it bears some strong flaws in context of the current business environment, which have made accounting bodies, especially IASB & FASB, to search for a number of other accounting methods One of these alternatives is fair (market) value accounting that has been thinking as the best alternative to the HCA The FV of an asset (liability) is the amount at which that asset (liability) could be sold or bought (settled or incurred)

in a current transaction between willing parties The strongest argument for a move

to FVA is that investors need to know what an asset is currently worth is rather than

is worth when it was acquired But the patrons of HC have strongly disagreed with this movement to FVA Therefore, there is an ongoing argument between HCA and FVA

FV is a required measure for many financial instruments Determining whether a financial instrument should be recorded at FV in a company‟s financial statements depends in part on what type of institution owns the instrument and the intended use

of that instrument For example, in the case of a broker-dealer, a high percentage of its assets typically are traded and must therefore be accounted for at FV Other institutions record financial instruments at FV depending on what their intent is for

In addition to using FV measures to comply with public reporting requirements, business determine their financial instruments at FV for a number of internal processes, including: making investing and trading decisions, managing and measuring risks, determining how much capital to devote to various lines of business, and to calculate compensation The use of FV measurements is deemed to

be relevant in these areas

FV provides important information about financial liabilities and assets as compared

to values based only on their HC (original price paid or received) Since FV reflects current market conditions, it provides comparability of the value of financial instruments bought at different times In addition, financial disclosures that use FV provide investors with insight into prevailing market values, further helping to make sure the usefulness of financial reports

The recent financial crisis has led to a main argue about FVA Many critics have debated that FVA, often also called market-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity

Through the quality of presentation and compliance of studies results, which related

to the reduced assets value in the world, the debates do not come to an end in these studies The purpose of the dissertation research is oriented to use of fair value accounting to more suited in Vietnamese situations

1.2 Problem statement

Using of fair values which is one of the measurement objectives in financial statement has a tendency in recent years Although FV are used to measure some

pervasively It is believed that the most relevant information to financial statement users is given by fair values The IASB and the FASB play an important role in improving a fair-value hierarchy, which indicates that when a price for the liability or asset exists in deep and liquid markets, that price is the liability or asset‟s FV

Therefore, the assets are recorded in financial reporting may not really close to its recoverable, although there are many factors leading to the decline of property values, especially in economic crisis

So the direction on determining the fair value accounting in Vietnam‟ enterprises is

an essential issue in the current period to clarify the nature of fair value and confirm

a new valuation tool for accounting in Vietnam Beside, bring the appropriateness of accounting valuation between Vietnam and international to narrow the gap in the integration process

The study focuses on research and addresses the following key issues Firstly, Study

on the history, nature and contents of fair value, as well as its application in the world Next, study on the characteristics of FV in theory and practical application of survey FVA in Vietnamese enterprises enhances the role of fair value Lastly, orientation on the use of FV in Vietnam and international practices in the short term

as well as long term

1.3 Structure of Study

This paper describes a framework of the FV in the case of Vietnam and the effects of using the FVA alter for the historical one Therefore, the research questions will be

as the following:

- Defined the fair value accounting

- What is the status of application of FV in Vietnam?

- What are the advantages and disadvantages of FVA especially in Vietnam?

- How does fair value use the most suitably for the characteristics of Vietnam?

These above questions will be answered in the following chapters In chapter two, literature review gives an overview about FVA, its application in the world through the concepts and examples of FVA Beside this, the challenges that Vietnam‟s companies facing when using FVA also discussed To assess this situation, the paper uses quantitative tool such as analysis, synthesis, comparison and matching in the next chapter From the method in chapter three, chapter four will give detail about survey questionnaire, test hypothesis to discuss these problems Study will complete with concluding remarks in chapter five

CHAPTER 2: LITERATURE REVIEW

2.1 Definition and conceptualization of Fair value

2.2 Fair value vs historical cost

2.2.1 Argument for and against HC

2.2.1.1 Argument for HC

2.2.1.2 Argument against HC

2.2.2 The argument for and against FVA

2.2.2.1 Argument for FVA

2.2.2.2 Arguments against FVA

2.3 Method to determine the FV

2.3.1 Valuation premise

2.3.2 Fair Value Hierarchy

2.3.3 Valuation Techniques

2.4 Practical application of FV in the world

2.4.1 FVA in the USA

2.4.2 Application of fair value as required in the international accounting

standards

2.5 The formation and development of FVA in Vietnam

2.5.1 History form

2.5.2 In common standard - model theory

2.5.3 Comparison between IAS and VAS on FVA

2.1 Definition and conceptualization of FV

The FASB has recently issued Statement of Financial Accounting Standards No 157 Fair Value Measurements (SFAS 157), on which work was well advanced before the Memorandum of Understanding was published SFAS 157 establishes a single definition of FV together with a framework for measuring FV for US GAAP The IASB recognized the need for guidance on measuring fair value in IFRSs and for increased convergence with US GAAP Consequently, the IASB decided to use the FASB‟s standard as the starting point for its deliberations As the first stage of its project, the IASB is publishing in this discussion paper its preliminary views on the principal issues contained in SFAS 157

Paragraph 5 of SFAS 157 defines fair value as „the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.‟ By comparison, fair value is generally defined

in IFRSs as „the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm‟s length transaction‟ (with some slight variations in wording in different standards) The definition in SFAS 157 differs from the definition in IFRSs in three important ways:

(a) The definition in SFAS 157 is explicitly an exit (selling) price The definition in IFRSs is neither explicitly an exit price nor an entry (buying) price

(b) The definition in SFAS 157 explicitly refers to market participants The definition

in IFRSs refers to knowledgeable, willing parties in an arm‟s length transaction

(c) For liabilities, the definition of fair value in SFAS 157 rests on the notion that the liability is transferred (the liability to the counterparty continues; it is not settled with the counterparty) The definition in IFRSs refers to the amount at which a liability could be settled between knowledgeable, willing parties in an arm‟s length transaction

The definition of FV in IFRSs refers to „knowledgeable, willing parties in an arm‟s

length transaction‟ This description is provided in IAS 40 Investment Property,

paragraphs 42-44:

The definition of fair value refers to „knowledgeable, willing parties‟ In this context,

„knowledgeable‟ means that both the willing buyer and the willing seller are reasonably informed about the nature and characteristics of the investment property, its actual and potential uses, and market conditions at the balance sheet date A willing buyer is motivated, but not compelled, to buy This buyer is neither over-eager nor determined to buy at any price The assumed buyer would not pay a higher price than a market comprising knowledgeable, willing buyers and sellers would require

A willing seller is neither an over-eager nor a forced seller, prepared to sell at any price, nor one prepared to hold out for a price not considered reasonable in current market conditions The willing seller is motivated to sell the investment property at market terms for the best price obtainable The factual circumstances of the actual investment property owner are not a part of this consideration because the willing seller is a hypothetical owner (eg a willing seller would not take into account the particular tax circumstances of the actual investment property owner)

The definition of fair value refers to an arm‟s length transaction An arm‟s length transaction is one between parties that do not have a particular or special relationship that makes prices of transactions uncharacteristic of market conditions The transaction is presumed to be between unrelated parties, each acting independently

2.2 Fair value vs historical cost

2.2.1 Argument for and against HC

2.2.1.1 Argument for HC

Although historical cost accounting still exist several limitations as well as flaws, we cannot deny that some patrons believe that it is considered as standard form of accounting by unique features and conventions Moreover, they still think that fair value statement cannot more reliable than historical financial There are some unique advantages that make many people support history cost accounting, including:

Managers can depend on the historical cost to know past data From there, they will forecast future operational cost Future projections are maybe wrong, even hampered

if without information about the historical cost - The recorded amount from HCA often is verifiable and reliable as well as avoiding management bias This is because they are based on actual transactions - HCA bring absolute certainly results and it also fits with the cash flow statement in perfectly According to Williamson (2003), HCA always help to balance sheet amount because of it tells exactly what has been received or received

Historical cost accounting uses invoice, receipts as ample evidences to support for avoid scope for manipulation

For fixed interest debt, HCA measures financial instruments at its issuance yield to maturity over its life, regardless of market yield movements This constant yield to maturity approach produces a smooth and predictable interest cost or return outcome and valuation (Australian Office of Financial Management: 2004-05)

2.2.1.2 Argument against HC

Historical Basis approach is one of the foundations of American accounting Following this approach, assets on the balance sheet will be presented the value at the time of acquisition- is known as the purchase cost However, many people think that with the widespread use of complicated financial tools as well as risk strategies

of management that can make/render yesterday's prices to become/ becoming obsolete Thus, many people require historical cost should be abandoned or modified, and even replaced by new method- is called as current- cost system Besides, there is the strongest argument that shows that HCA do not provide needed information that is relevant to them To prove these things, critics bring significant advantages as well as disadvantage in HCA

The transaction can be related in a year or ten years by HCA values According to Williamson (2003), the acquisition value may be out of date and thus balance sheet represents out of date values

HCA is only paying attention on cost allocation and not on the value of an asset So,

it discloses the acquisition cost of an asset and its depreciation in the following year, but ignores the possibility that the disclosed amount of the asset may be higher or

There is also flaw when using HCA in terms of inflations It is based on the assumption that the purchasing power is not change over a time period However in reality, price at current point of time may be more expensive effect by inflation in future This inflation is unadjusted in HC financial statement As a result, in the time

of high inflation, profits are inflated and thus the tax bill tends to increase

When an entity‟s financial instruments are concerned, HC prices reflect both an old interest rate and an outdate assessment of the amounts, timing & hesitation of cash flows in future (Hague & Willis: 1999)

Intangible assets acquired outside of business combination (internally generated) are not reported in historical financial statements

Reliable forecast of the future income effects of a financial instrument is unlikely to

be possible from the simple extrapolation of past gain and losses based on historical cost

2.2.2 The argument for and against FVA

2.2.2.1 Argument for FVA

Supporters of FVA argues that this measurement is more appropriate than HC as it provides up-to-date information consistent with market and as it takes into account the inflationary adjustment to the acquired cost Opponents have argued that this method increases volatility and thus reduces stock price Its patrons contend that HCA hides economic realities while FV reveals

These are following advantages supported by the proponents of FVA:

FV measurement is more relevant to investors and creditors as it reflects the current market price of an asset or liability

Jackson (2000) argues that it provides more transparency to users If all financial instruments can be measured at FV; regulators, depositors & investors may have achieved greater regulatory and market discipline

Measurement of financial assets and liabilities at FV in the balance sheet should better capture an entity‟s exposure to risk and increase its visibility in the balance sheet.(IASC discussion paper :1997)

Generally, an investor appraises the risk that he is ready to accept in exchange for a particular return The appraisal is based on the information available to him The information about the FV at the reporting date, the changes in that value and the components of that change- all provide the investors with valuable information for his decision making (Hague: 1999)

FV measurement is useful to determine and record asset impairments

The FV of any financial asset or liability embodies the market exception of future income return from that instrument taking into account the current market rate of return for commensurate risk Therefore, an investor can evaluate the expectations of market when he knows the FV of a financial instrument and has information about its terms & risks (Hague & Willis: 1999)

According Shim et al (1998), FVA give more helpful and relevant information than

transactions They also believe that as business environments are changing speedily and become increasingly unstable, the financial statements of firms should represent the underlying economic actuality of the firms rather than the summary of past transactions They admit, however, that due to the subjectivity of certain measurements, FV financial reporting may be less reliable But they strongly support that a certain amount of subjectivity also exists in HCA

Consequently, they suggest that existing HCA need to be substantially changed in the direction of FV financial reporting to achieve financial reporting‟s objective that is to provide useful information to the users

White (1991) argues that the existing measurement framework (HC) is gravely deficient, because it is backward-looking rather than focused on present market values He supports the use of FVA even at the expense of some estimation errors

He also argues that the function of an accounting system is to present the current economic reality of a corporation so those private and public decisions have a proper basis The current accounting standards therefore should be replaced with systems of FVA that specifically attempt to capture current economic reality

2.2.2.2 Arguments against FVA

In opinion of the fair value dissenters, fair value financial statements provide unreliable information; because it is not based on arm‟s length transactions & there is

a huge possibility for management to manipulate the bottom line They contend that

if the information is untrustworthy, it should not be used to make financial decisions

Some critics are worried that the precipitous adoption of FVA will have negative effect on both the financial system and banks as a whole These critics suppose that earnings based on HC for investment securities are likely to be less unstable than those based on market value (Yuko & Tatsuya: 1998)

These following flaws of FVA have been pointed out by critics:

In view of Ramanna & Watts (2007), FV are basically based on unverifiable subjective estimates of managers Agency theory recommends that managers will make use of this unverifiability to control financial reports in order to extract rents

Budding reliable methods for measuring FV in order to increase the credibility and reliability of investors in the information reported in financial statements are too critical, especially in the light of recent scandals in financial reporting (Shortridge et al: 2006)

When quoted market price for an asset or liability is not available, FV is measured based on an estimate by using the most excellent information and techniques available in the circumstances However most often difficulties occur when making estimates of FV by using inappropriate models like: cash-in method or using appropriate models inappropriately, for example, using assumption that doesn‟t reflect the risk in the underlying asset (Jackson: 2000)

Although FV is able to provide relevant and reliable measures of impairments of an asset or a liability, it can‟t provide the same relevant & reliability in case of measuring the appreciation

Valuing tangible and intangible assets at FV is extremely difficult and time consuming Someone who accepts the FV for balance sheet measurement of financial instruments has faced greater difficulty in accepting the performance reporting effects (Hague: 1999)

2.3 Method to determine the FV

The following issues should be considered when determining fair value

2.3.1 Valuation premise

The valuation premise used to measure the fair value of an asset depends on the highest and best use of the asset by market participants The valuation premise include:

Valuation premise of continuous operation or in- use: apply to measure the FV of assets and liabilities such as: continuous business operations or assets to be determined is used for of the business

In-exchange valuation premise: the property is determined not to use that to sell, exchange

To increase comparability and consistency in FV measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used three broad levels to measure FV

Level 1 lies at the top of the hierarchy, where inputs are quoted prices in active markets Level 1 inputs may be observable in markets such as the New York Stock Exchange, Nasdaq, electronic communication networks, and principal-to-principal markets, where prices are negotiated independently between the parties with no intermediary (para A20)

Level 2 inputs are in the middle of the hierarchy, where data are adjusted from similar items traded in active markets, or from identical or similar items in markets that are not active Level 2 inputs do not stem directly from quoted prices For example, the FV of finished goods at a retail outlet acquired in a business acquisition could be based on the price expected to be received in selling the inventory at retail,

or the value at wholesale, adjusted for differences between the condition and location

of the items Theoretically, FV should be the same whether adjustments are made to

a retail price or a wholesale price, but the FV estimate that maximizes inputs in the higher level of the hierarchy is the one that should be used to estimate the price to be received in selling the inventory (para A24f)

Level 3 inputs are defined as unobservable inputs for the asset or liability Unobservable inputs shall be used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date On the other hand, the FV measurement objective remains the same, that is, an exit price

As a result, unobservable inputs shall reflect the assumptions that market participants would use when pricing the liability or asset, (including assumptions about risk)

2.3.3 Valuation Techniques

Valuation techniques include a market approach, an income approach, and a cost approach The methods to determine FV depend on the FV hierarchy These methods are described as follows:

The market approach employs prices from market events with identical or comparable assets or liabilities, illustrated by a pricing method that values a debt security based on its relationship to benchmark-quoted securities

The income approach relies on present-value techniques to translate future amounts

to the present time, as illustrated by an option pricing model

The cost approach is concerned with the amount needed to replace the service capacity of the asset; that is, its current replacement cost or the cost to acquire or construct an asset of comparable utility allowing for obsolescence (para 18)

In one example described by SFAS 157, an entity may acquire software for licensing

to customers as part of an asset mix in a merger To allocate the cost of the asset mix

to the software, the entity applies fair valuation techniques and determines that the best and highest use is as an in-use asset (para A17) Insufficient data were available

to use the market approach, so the entity investigated the cost and income approaches The cost approach yielded an estimate of $10 million, but the software would be very difficult to replicate because certain aspects were unique and

developed using proprietary information The income approach yielded a value of

$15 million In this case the entity should use the income approach (para A19)

In another example, an asset group is impaired One of the machines in the group was bought outside but underwent some minor customizations by the entity The best and highest use is determined to be in-use with the other assets as a group The market approach reflects quoted prices, considering the location and condition of similar machines, and yielded an estimate between $40,000 and $48,000 The cost approach reflects the cost of a substitute machine of comparable utility and yielded a

FV estimate between $40,000 and $52,000 There was not a separate income stream from the asset, so the income approach was not applied In this case, the market approach should be used, because it is based on quoted prices for similar machines, the estimated value had a narrower interval estimate, and there were no unexplained differences between the entity‟s machine and similar machines (para A16)

In some cases, one technique is appropriate; in other cases, multiple techniques are needed (para 19) Whether the valuation method is based on the market, income, or cost approach, it should be used consistently A change in methods is appropriate only if the new method is at least as representative as the previous method (para 20)

2.4 Practical application of FV in the world

Fair value is recognized in many countries around the world, this section will consider the application of FV in the United State and the requirements for FV under IAS

Fair value is applied in the following cases:

- Recognition and presentation of financial instruments (trading securities, available for sale securities, derivatives)

- Recognition of some assets and liabilities have been made in the business combination

- Initial recognition in case of non-monetary exchange

- Recognition and presentation of items in foreign currencies

- Initial recognition of fixed assets for leasing

Under SFAS No 141 - Business Combinations and FAS No 142 - Goodwill and intangible assets-require the use of fair value estimates, this trend will continue to

develop, encouraging business more interested in the valuation experts - the experts

in determining fair value Meanwhile according to United States Generally accepted accounting principles (U.S GAAP), it does not require business owners hire outside experts to measure the fair value, but many businesses still hire outside experts for objective reasons, profession experience and skills of professionals

FV is determined based on:

- The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

-If having transaction price, the price will be used

- If having more than one market price, the price from the most active market should

be selected

- If the transaction price is not available, use of management estimates

-securities is based on: quotation board or price list, the price to pay based on transactions registered on Securities and Exchange Commission (SEC) or National Association of Securities Dealers Automated Quotations (NASDAQ)

Disclosure of FV

- Require disclosure of FV of all financial instruments, the information description of the financial instruments also should be disclosed

- Information on fair value should be presented along with its book value

- The fair value can be disclosed in the notes or longer present - including a summary

of fair value, book value and a table cross-references to other explanations

2.4.2 Application of fair value as required in the IAS

IAS were required to apply fair value in the following cases:

- Business Combinations (IAS 22): assets and liabilities acquired are should be

recognized at the date of acquisition The difference between the cost of the acquisition and the acquiring enterprise's share of the FV of the identifiable assets acquired less liabilities assumed is recorded as goodwill

- Inventories (IAS 2): forest products and producers of agricultural, agricultural produce after harvest, and mineral products and minerals, brokers and dealers, are measured at net realizable value Commodity brokers and dealers who measure their inventories at FV less costs to sell

- Agriculture (IAS 41): living animals, plants, and harvested products are recorded at fair value with frequent reassessment

- Property, plant and equipment (IAS 16): Enterprises have the option noted after the

impairment, or carried at fair value at the date of revaluation less subsequent depreciation and impairment

Intangible assets (IAS 38): Intangible assets are initially measured at cost Businesses can be record intangible assets at fair value - if exist market activity for the assets

- Leases (IAS 17): Whether a lease is a finance lease or an operating lease depends

on the substance of the transaction rather than the form The lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than fair value

at the date the option becomes exercisable that, at the inception of the lease, it is reasonably certain that the option will be exercised

- Investment Property (IAS 40): business can measure investment property at fair value or at cost less accumulated depreciation and less accumulated impairment losses (cost mode)

- The effects of changes in foreign exchange rates (IAS 21): A foreign currency transaction should be recorded initially at the rate of exchange at the date of the transaction non-monetary items carried at fair value should be reported at the rate that existed when the fair values were determined

- Financial instruments (IAS 39): Initially, financial assets and liabilities should be measured at FV Subsequently, financial assets and liabilities (including derivatives) should be measured at FV, with the following exceptions:

 Loans and receivables, held-to-maturity investments, and non-derivative financial liabilities

 Investments in equity instruments

 Financial assets and liabilities that are designated as a hedged item or hedging