How is the concept of “fair value” utilized in governmental accounting?

The concept of "fair value" in governmental accounting is used to measure the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. This concept helps ensure that financial statements accurately reflect the current market conditions and the values of the assets held by the government.

Using fair value provides a more meaningful representation of an asset's worth compared to some other methods, such as historical cost, which may not capture changes in the asset's value over time. This aligns with the broader objectives of financial reporting, particularly in providing relevant and reliable information to stakeholders about a governmental entity’s financial position and performance.

Fair value measurements are particularly important when changes in market conditions affect the value of assets, allowing governments to present a more accurate financial picture. This is essential for transparency and accountability in managing public resources.