Management accounting and financial reporting Essay

Management accounting and financial reporting - Essay Example Value has been defined in more than one way. In the business world at least, the definition of value ranges from that of finance, to that of marketing. The difference in use according to these definitions are usually the common cause of conflicts with regard to the use of the term. In basic finance, value, or more specifically the value of an asset in economic terms is best defined as the sum of the future benefits, or cash flows to the company which is discounted to the present (Wallace 2008). This is more commonly referred to as the fundamental value (Hanney 2008). On the other hand, built on the argument of benefits that are to be received, value in marketing is usually linked to the asset price that the buyer is willing to pay (OKelly 2008). This is the perceived value. As value is linked to utility, which is linked to perception of future benefits to the receiver of a thing, these two definitions of value, although related in the most basic way, are usually confused when being used (Rossi III, 2009). Perceived value is the concept of true value being reflected in price of a traded commodity (Wallace 2008). This link between value and the price is held by the efficient market theory, where the price includes all the available information in the market and is a good predictor of value (OKelly 2008). Capital markets are considered efficient markets where investors are assumed to be sophisticated, rational individuals who maximise their wealth and utility, and thus only accept prices that reflect the true value of the commodity (Campbell, Owens-Jackson & Robinson 2008). This provides the link between the definition of fundamental value and the perceived value. Accounting regulatory boards have find it hard to define the concept of fair value. According to McCollum, â€Å"obtaining information relevant to fair value is one of the biggest challenges organisations and auditors face in the current market