Ideally, the fair value option gives companies the option to use fair value. A fair value option allows enterprises to record their fair value in their accounts for most financial instruments comprising items such as receivables, investments as well debt securities. Since the fair value information may be more useful than historical cost for particular types of assets as well liabilities in certain industries, GAAP calls for the use of fair value option.
Work Step by Step
Its important to note that, FASB gives the fair value option to enterprises so that they can promote the fair value option.