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In: Accounting

Under current US GAAP, companies may opt to report financial assets and liabilities at fair value....

Under current US GAAP, companies may opt to report financial assets and liabilities at fair value.

Make an argument for Position #1: Present arguments in favor of the fair value option for financial assets and liabilities.

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Expert Solution

Arguments in favor of the fair value option for financial assets and liabilities.

1. Accurate valuation of assets and liabilities:- It reports financial assets and liabilities at current market price.

2. Reflect true income:- Assets and liabilities will be marked up and down on the basis of their fair value and effect will be shown in the income statement. Management won't be able to artificially increase/decrease their net income, because many times when they sell the assets, they show artificial gain or loss depending upon the need.

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