What are the advantages and disadvantages of fair value measurement and historical cost measurement?

Advantages of fair value measurement: Fair value measurement meets the requirements of the useful concept of decision-making and can reflect changes in assets and liabilities in a timely manner. Fair value measurement adapts to the needs of financial innovation, truly reflects the essence of the transaction, reflects the estimation of the net present value of future cash flows directly or indirectly implied by the market in financial instruments, and is conducive to the accounting and innovation of financial instruments.

Disadvantages: Poor reliability, susceptibility to human factors, and difficulty in fair judgment, resulting in distortion of accounting information. The cost of using information is high, and it takes a lot of manpower and material resources to analyze various factors at the end of each accounting period and make judgments about the fair value of future assets and liabilities.

Poor operability, in the absence of market transactions, the present value technique as an estimate of fair value is difficult to operate in accounting measurement.

Advantages of historical cost measurement: strong reliability, objectivity and verifiability.

Disadvantages: When inflation and prices fluctuate drastically, it is difficult to truly reflect the financial status and operating results of an enterprise in the current period. Only certain economic resources can be measured, and some uncertain knowledge resources cannot be reflected in the accounting information.

It is difficult to meet the needs of information users for current market information and lacks timeliness and relevance.

1. Advantages of fair value.

1. The fair value is used appropriately and reasonably, which can reflect the real financial status and income of the enterprise, and is highly relevant, so as to improve the usefulness of information decision-making.

2. The fair value is the result of the transaction between the buyer and the seller in the market, which is based on the original certificate and can be verified.

However, when the price fluctuates greatly or the currency value is unstable, the historical cost cannot truly reflect the financial status and operating performance of the accounting entity, thereby weakening the usefulness of accounting information and affecting the current decision-making.

2. Disadvantages of fair value.

1. In the case of insufficient market information, it is easy to make fair value measurement a tool for enterprise earnings management, profit manipulation and asset structure, which affects the quality of accounting reports and reduces the value of information.

Historical costs prevent arbitrariness and make it easy to understand and compare.

There is no need to adjust the accounts frequently, which prevents arbitrary changes to accounting records and maintains the reliability of accounting information.

2. Historical costs are easy to obtain, simple and easy to implement, and there is no need to adjust the accounts frequently.

Fair value is not readily available.

There are Huaiqing accounting transactions that can confirm or look for similar transactions**, but some cannot be found and can only be estimated, and the information cost is high.