Fair value accounting and the future of financial instruments

Balance Sheet ◽  
2000 ◽  
Vol 8 (5) ◽  
pp. 10-13 ◽  
Author(s):  
Patricia Jackson ◽  
David Lodge
Keyword(s):  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
The Future

scholarly journals Fair value accounting and earning management: The impact of unobservable inputs on earning quality. Evidence from the US

2019 ◽  
Vol 16 (2) ◽  
pp. 8-18 ◽  
Author(s):  
Marco Pompili ◽  
Marco Tutino
Keyword(s):  
Financial Reporting ◽  
Negative Impact ◽  
Evaluation Process ◽  
Strong Relationship ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
Earning Quality ◽  
The Impact

Accounting standard boards (IASB and FASB) are aimed at designing high-quality standards able to increase transparency and comparability of financial reporting. They have chosen fair value accounting (FVA) approach to improve the quality of financial reporting and at the same time help financial reporting users in the decision-making process. During recent years, an intense debate has arisen about the trade-off between relevance and reliability of accounting information using this approach. Many authors outline problems related to the fair value hierarchy valuation of financial instruments, in particular, the discretionary use of unobservable inputs in financial instruments valuation process in support of earnings management. Tutino and Pompili (2018) have identified a general negative correlation between the extent of FVA and earning quality. Stating this, the main objective of the paper, using the same approach of the previous one, is to identify the specific impacts of unobservable inputs on earning quality. Theory and previous literature suggest a major negative impact of unobservable inputs than observable ones on the quality of information provided within financial reporting. Results show a negative and strong relationship between FVA and earning quality for US banks that do not depend on the hierarchy of input used in the evaluation process. These results suggest new considerations on the reliability of fair value concerning the possibilities of manipulation given to the management with this approach.

scholarly journals User Views On The Complex Accounting For Financial Instruments

2011 ◽  
Vol 4 (12) ◽  
Author(s):  
Chyi Woan Tan ◽  
Greg Tower ◽  
Phil Hancock ◽  
Ross Taplin
Keyword(s):  
User Experience ◽  
Financial Institutions ◽  
Fair Value ◽  
User Preferences ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
General Support ◽  
Accounting Model ◽  
Topical Area

This paper examines Australian and Singaporean users views on fair value accounting for all financial instruments in financial institutions via a survey on various aspects of contention in this debate. Overall, users showed general support for fair value accounting for all financial instruments. In addition, the findings revealed that users will support fair value accounting so long as there is no perceived difference between the banking and trading books, fair values of non-traded financial instruments are reliable and volatility in earnings will not be misunderstood. It was also found that user experience increases the level of support for the proposed fair value accounting model. These results highlight actual user preferences with noticeable support for arguments from both sides of the debate (JWG and JWGBA) in this highly contentious and topical area of accounting for financial instruments.

Fair Value Accounting for Financial Instruments: Does It Improve the Association between Bank Leverage and Credit Risk?

2013 ◽  
Vol 88 (4) ◽  
pp. 1143-1177 ◽  
Author(s):  
Elizabeth Blankespoor ◽  
Thomas J. Linsmeier ◽  
Kathy R. Petroni ◽  
Catherine Shakespeare
Keyword(s):  
Credit Risk ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting

scholarly journals Fair value accounting and management opportunism on earnings management in banking sector: First evidence

2018 ◽  
Vol 15 ◽  
pp. 59-69 ◽  
Author(s):  
Marco Tutino ◽  
Marco Pompili
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Banking Sector ◽  
Strong Relationship ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
Valuation Process ◽  
Earning Quality ◽  
Short Termism

Accounting standard boards (IASB and FASB) have chosen fair value accounting (FVA) approach to help financial reporting users in the decision-making process. During recent years, an intense debate arose about the trade-off between relevance and reliability of accounting information in this approach. Even if fair value based information could be considered highly relevant and helpful from an investor’s perspective, many authors outline problems related to fair value hierarchy valuation of financial instruments. In particular, the discretionary use of unobservable inputs in financial instruments valuation process can support earnings management strategy underlying the risk for emerging agency problems, moral hazard behaviour and management short-termism. Stating that, after providing a literature review focused on management behaviour related to FVA, the main objective of the paper is identifying possible relationships between FVA valuations and earning quality observing a sample of US and European banks listed in the period 2011-2016 based on Šodan model (Sodan, 2015). Results show a negative and strong relationship between FVA and earning quality for US banks; results for European listed banks do not provide any strong evidence.

scholarly journals A Stakeholder’s Perspective on the Implications of IFRS and Fair Value Accounting on Valuation of Securities

2013 ◽  
Vol 3 (2) ◽  
Author(s):  
Glynis Milne and Dr. Eloisa Perez
Keyword(s):  
Financial Reporting ◽  
Market Value ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
Optimal Method ◽  
Historical Cost ◽  
Financial Reporting Standards ◽  
Illiquid Markets ◽  
Fair Market Value

Due to the complexity of modern financial instruments, accurate valuation can prove difficult even in optimal market conditions. Traditionally International Financial Reporting Standards (IFRS) have allowed securities to be valued based on their historical cost, which results in financial instruments being held on the books at the initial cost paid, until the point at which they are sold. However, this practice may be viewed as problematic when the market value of the financial instrument has not appreciated. Furthermore, market valuation becomes even more difficult to substantiate in illiquid markets, as it may oftentimes be difficult to secure a buyer at any price. Opponents of the historical cost methodology argue that in these circumstances it is unreasonable to allow firms to continue to hold their financial instruments at historical cost, and advocate for a valuation framework that requires the holders of securities to mark their book value to the best estimate of fair market value available. This viewpoint is countered by those who believe that in illiquid markets or markets in crisis, marking to market value is unfair as no functional market exists. In light of the subprime mortgage crisis the new iteration of IFRS requires the use of fair value accounting and marking to market for investment products of all types, with the exception of those held to maturity (bonds). Through a review of current literature, we sought to determine the optimal method for valuation of investment products. Our goal was to determine a reliable and representationally faithful method of valuation that will balance the needs and requirements of all stakeholders and provide transparency in accounting.

Fair Value Accounting for Financial Instruments: An Historical Perspective

2009 ◽  
Vol 15 (4) ◽  
pp. 490-491 ◽  
Author(s):  
Jiří Strouhal ◽  
Carmen Giorgiana Bonaci ◽  
Dumitru Matis
Keyword(s):  
Historical Perspective ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting

scholarly journals Fair value accounting en toepassing van de fair value-hiërarchie door een populatie van Europese banken

2011 ◽  
Vol 85 (1) ◽  
pp. 64-79
Author(s):  
Bert-Jan Bout ◽  
Ralph Ter Hoeven
Keyword(s):  
Best Practices ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
Ifrs 7 ◽  
Level 1

In deze bijdrage wordt onderzocht in hoeverre de populatie banken binnen de ‘FTSE Eurofirst 300’-index voldoet aan de voorschriften van het in maart 2009 gepubliceerde IFRS 7-amendement ‘Improving disclosures about financial instruments’. Dit amendement bepaalt met name dat tegen fair value gewaardeerde financiële instrumenten op grond van een fair value-hiërarchie (level 1, 2, 3) moeten worden geclassificeerd. Tevens dienen specifieke toelichtingen met betrekking tot deze hiërarchie gegeven te worden. De hiërarchie die in het licht van de kredietcrisis versneld in IFRS 7 is opgenomen, dient de gebruiker van de jaarrekening beter inzicht te geven in de waarderingsmethodiek en inherente onzekerheid van respectievelijk op fair value gewaardeerde financiële activa en financiële verplichtingen. Naast het empirisch jaarrekeningonderzoek met betrekking tot de kwaliteit van naleving van de voorschriften, worden vermeldenswaardige toelichtingen en best practices gepresenteerd en van commentaar voorzien. Voorafgaand aan het empirisch onderzoek wordt de inhoud van het amendement besproken. Deze bijdrage wordt afgesloten met een nabeschouwing inclusief aanbevelingen.

Another step towards full fair value accounting for financial instruments

2004 ◽  
Vol 28 (2) ◽  
pp. 167-179 ◽  
Author(s):  
Francisco Gabriel Hernández Hernández
Keyword(s):  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting
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