Research On The Application Of Fair Value In Financial Instruments' Measurement

Since 1970s, with the disaggregation of Bretton Wood Monetary System, exchange rate system replaced fixed exchange rate system, oil crisis and the others, risk and fluctuation in financial market have sharply increased. In order to evade risk and reduce cost of capital, financial derivative instruments have gradually emerged.With the emergence and development of financial derivative instruments, people started to consider that whether the cost or cost-based measures were appropriate or not for financial instruments'measurement. Measurement of financial instruments is a difficult problem in accounting. Until now, no country required all financial assets or financial liabilities to be measured at fair value each reporting period with changes in those fair values reported in earnings. But we all believe fair value will make accounting information more relevant and understandable. The Mixed-attribute Accounting Model significantly reduces the relevance of the resulting reporting by failing to portray the earnings effects of financial instruments'exposures in the same reporting period and increases users'costs in processing the information by introducing treatment alternatives that reduce the comparability of reported results within and across reporting entities and line items.This paper focuses on trying to give answers to the following questions: How to define Fair Value? Does that fair value measurement accords with current accounting theory? What is the limitation to Mixed-attribute Accounting Model? How current research on fair value and financial instruments accounting, such as SFAS157,159 issued by FASB and the discussion paper: Fair Value Measurements, Amendment to IAS 39-Fair Value Option issued by IASB, will change current accounting practice in financial instruments'measurement?We believe that Mixed-attribute Accounting Model is a phase that we can't overstep, and measuring all financial instruments at fair value is a long-term goal that we are working for. There are several unresolved issues just as follows: How to measure fair value? How to present changes in fair value? Whether to continue to permit hedge accounting for forecasted transactions? Whether additional disclosures should be required?With the continually research on fair value and financial instruments accounting, and also with the development of domestic market economics,the widely handling of evaluation technique, we can finally carry out the comprehensive fair value measurement in financial instruments'measurement.