Decision usefulness theory basically defines the importance and usefulness of the financial information to investors in making decisions about investments. The decision usefulness theory entails that the financial information be provided to the shareholders and other interest groups which is of relevance to them and is reliable. One of the aspects of this theory is the economic resources and claim on these resources by an entity.
The main constraints in valuation are materiality and cost. IAS 139 was issued so that the financial assets of a company held to maturity, held for trading or available for sale could be recognized and measured by fair value instead of historical cost. This would reflect a more transparent position to the shareholders or investors in making decisions about investing in the entity. The information thus provided in the financial statements would be reliable and relevant to the decision makers. If we see the accounting recognition of financial instruments at fair value the estimations for these values in the balance sheet and income statements would have to be supported by facts on the valuation techniques used. The fair value approach tries to reflect the economic values rather than the historical values in accounting.
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