Finance Assignment Sample on Argumentative Finance Essay

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Finance Assignment Question

Two issues that are currently debated are:

(a) Does a measurement basis need to be free from all errors so that it is perfectly accurate in all aspects? What if this condition is not satisfied (e.g., estimation uncertainty)?

(b) Would a single measurement basis for all assets and liabilities provide the most relevant information for users of financial statements (e.g., full fair value accounting)? Alternatively, should standard setters reduce the number of different measurements used to the smallest number necessary so as to provide relevant information to financial statement readers?Do you agree with the above statements? Why or why not?

Please provide the relevant arguments and reasoning as to why the above statements would be (i) true or (ii) not true. You may draw your inferences from prior research or writings in academic or industry publications. However, please include the proper citations and references in your bibliography.

Finance Assignment Solution on Argumentative Finance Essay

QUESTION A

PART 1

When we consider any financial transaction, we need to consider a set of aspects, which relate to that transaction. Following are some of those aspects:

  • The information involved in the transaction(Bushman & Smith, 2001)
  • Mode of transaction(Brown & Ryngaert, 1991)
  • Comparative market price scenario(Rosenzweig & Parry, 1994)

While considering the measurement of these aspects, it is possible that mostly two types of errors will occur in these aspects. Following are those errors:

  • Systematic error: this error occurs because of measurement bias (Meredith & Millsap, 1992). This error changes owing to some constant value or dependent factor in the variables.
  • Random error: this error occurs, when repeated measurement results in dissimilar results(Church, 1964). The results are uncorrelated in nature…

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PART 2

In reality, the majority of these cases show the evidence of estimation uncertainty, which in turn results in information asymmetry in the financial domain, namely primary market, management accounting, and cost accounting domain. Once this case arises, game theoretic solutions have been provided historically (Chymis, James, Konduru, Pierce, & Larson, 2007). As the interacting parties can be denoted as principal and agent, and they are trussed by considered belief, game theory strives to envisage activities of one party derived from the preeminent reaction of another, specified incentive and estimated mutual proceedings (Wilks & Zimbelman, 2004). In case of faulty measurement basis, the issue of allocation of proper information among transacting parties proves out to be an issue to be addressed. For this purpose, economic games can take a major part…

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QUESTION B

PART 1

If we have a vigilant glance at any financial statements, it can be visualized that assets and liabilities come under several different classes. These classifications differ from each other based on several aspects. Primarily, if we look at the effective life assessment of various kinds of financial assets in accordance with IFRS, it can be understood that assessing them with similar basis of measurement can bring forth faulty scenarios before the stakeholders. Looking at another side, not all the assets come under the traditional depreciation category, as some of them appreciate over a period. Single measurement bases like historical cost, market valuation, and replacement cost, lack the ability to assess the financial statement elements to a proper extent. On the other hand, combinational approaches like deprival valuation, historical cost aspect of market valuation, replacement cost aspect of market value etc. are more likely to bring forth transparent informational aspects before stakeholders…

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PART 2

Conversely, it is advisable for standard setters reduce the number of different measurements used to the smallest number necessary. However, reduction of measurement numbers should not lead to a single measurement basis. The major rationale behind this reduction is that following a large number of measurement bases may possibly lead to confusion among stakeholders and in turn create information asymmetry (Marr, Gray, & Neely, 2003). For that reason, this can bring forth predicaments in terms of decision-making, as the rational market hypothesis possibly will go for a toss owing to this situation (Campbel & Kracaw, 1980). As dissimilar signals may be acquired by stakeholders owing to this, moral hazard situations possibly will arise (Merton, 1987). To avoid this kind of negative consequences among stakeholders, it is required to reduce the number of measurement bases. It has been observed in many cases that the readers of financial statements make use of their own knowledge and own measurement bases for evaluating the elements of financial statements…

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