2.1.6 Valuation

Printer-friendly versionPDF versionThe accounting profession due to a highly litigious environment and the inherent difficulties of probabilistic measurement has resorted to the more confirmable and less valid forms of modified historical based reporting. Furthermore with the increased consideration of non-financial measurements where organizations try to assess the value of their workforce, of their intellectual property, of their sustainable resources, etc the temptation is to go back again to historical values invested on these issues. For example valuing an employee based the company’s investment on his/her education, professional training, etc. This is one of the examples of a very intractable set of problems. The standard to apply here is whether the information user will be better or worse served by being supplied verifiable (say historical cost based) investment information rather than estimates which may be more indicative of future value, but are less verifiable. If the estimate is used, will this information be more or less reliable than the old method? And can a structure be developed that users can download and perform their own analytics on this data? The modern world is developing a wide of set live markets whose by-product is online real time valuation of many assets. Research is needed to understand how prevalent is this type of information and how expensive it is to harness it. Clearly the new economy has troves of transaction prices, valuation prices, indices, price lists and live exchange data available on a minute by minute basis. While the type of asset concentration changes substantially from sector to sector,[3] current values may exist for a substantive set of assets and temporal estimates (say weekly or monthly) of values may exists for many others. [SS3] n Some assets are to be measured in some form of high fluctuation transaction-based values following real-time indices xxxx nAn account for valuation changes must be created that allows for valuation changes not to flow thru income [SS4] n Income flow thru only should happen when asset realization occurs and this calculation should be using some form of inflation adjustment n Where appropriate even future indices may be applied as long as the documentation is clear n As today we keep depreciation schedules for major property items the new model should have valuation schedules for say the largest 100 assets of the corporation n The economics of information today are such that constant evaluations of asset values should be doable, disclosable without prejudice of competitiveness, and usable by the user’s analytic tools n Present value of any future income flow with allowance for best-estimators (and their variance) nProcesses, nature of account, inter-process controls and other lesser items determine reliability of numbers at the transaction, reporting aggregate, and general ledger levels among many. nAssurance / audit processes change these values on a continuous basis (real time seal, alarms, control tickers, points of comparison) [MA5]