¶ … financial statements of Marriott Hotels and discusses measurement bases they employ. The essay also surveys the literature for current thinking on fair value measurement. According to the International Financial Reporting Standards (IFRS), measurement "involves assigning monetary amounts at which the elements of financial statements are to be recognized and reported" (Deloitte, 2011). Accounting measurement consists of quantifying financial information in dollars or units. These measurements are then used to report information to internal and external users through the use of financial statements that accountants prepare. Financial accounting measurements may be recorded at historical cost or adjusted to reflect current market values (Conjecture Corporation, 2011).

Generally Accepted Accounting Principles (GAAP) require companies to record balance sheet information using a fair value accounting measurement. Companies must therefore use this measurement technique to value assets and equity investment at the current market rate which thee items would bring if they sold in an open market. Such measurement methods may require disclosure on the company's financial statements by way of footnotes or disclosure statements. Investors use these explanations to better understand how the company values its balance sheet items and to determine if the company has accurately applied to GAAP. If accounting measurements are incorrectly applied, misstated financial statements may result, with the result that banks or investors may be unwilling to invest in these companies due to accounting irregularities (Conjecture Corporation, 2011).

The International Financial Reporting Standard (IFRS) acknowledges a number of measurement bases, including historical cost, fair value, and present value. According to the Framework of International Accounting Standards Board (IASB), historical cost is the most commonly used measurement basis. Historical cost requires financial statement items to be based on original cost and is primarily used for cash and held-to-maturity liabilities.

Fair value of an asset is the amount at which the asset could be bought or sold in a current transaction between willing parties not part of a liquidation. Fair value of a liability is the amount at which that liability could be incurred or settled in a current transaction between willing parties.

Present value is defined as the current worth of future cash flows, which are discounted at the discount rate; the higher the discount...

The key to valuing future cash flows is determining the appropriate discount rate for either earnings or obligations.
Regarding which measurement best describes measurement in accounting, fair value provides the best combination of reliability and relevance. Historical cost, while providing a simple, objective measurement, may significantly over- or understate assets or liabilities, such as real estate which value can fluctuate widely due to economic conditions. Present value measurements lack reliability because calculations assume that the applicable interest rate or rate of return are known.

The financial statements of Marriott International, Inc. show the following measurement bases:

Historic Cost

Fair Value

Present Value (N/A)

Timeshare inventory (lower of cost or market)

Securitized loans

Property and equipment

Senior and Non-securitized loans

Goodwill

Notes

Restricted cash

Marketable securities

Non-recourse debt

Long-term derivative liabilities

Senior notes

Impaired software asset

Impaired golf course

Impaired land parcel

Timeshare impairment

Based on Marriott's financial statements, one can conclude that fair value measurement is more applicable to the transactions that are typical of their business.

Accounting academics and practitioners hold various views on fair value accounting. Barth (2006) advocates for including estimates of the future in today's financial statements and argues that the use of such estimates is increasing. According to Barth, this increase occurs primarily because standard setters believe asset and liability measures that reflect current economic conditions, along with up-to-date expectations of the future, result in providing more useful information for making economic decisions. Given that this is the objective of financial reporting, Barth argues that therein lies the justification why standards setters are focused on fair value accounting.

Did fair value accounting play a role in the current economic crisis? Magnan (2009) explores this question. He argues that characteristics of fair value accounting would have been responsible for creating a circular dynamic in financial reporting, with markets providing the inputs for the measurement of many assets, thereby…