scholarly journals The use of historical cost and fair value for property and plant and equipment measurement: Evidence from the Republic of Serbia

2020 ◽  
Vol 65 (227) ◽  
pp. 95-118
Author(s):  
Nemanja Karapavlovic ◽  
Vladimir Obradovic ◽  
Jasmina Bogicevic
Keyword(s):  
Financial Reporting ◽  
Cost Model ◽  
Fair Value ◽  
Legal Form ◽  
Historical Cost ◽  
Model Based ◽  
Valuation Model ◽  
Subsequent Measurement ◽  
The Republic ◽  
Willingness To Use

The aim of the paper is to reveal how financial statement preparers in the developing and transition country of the Republic of Serbia, behave in situations where they can choose between the valuation model based on historical cost and the valuation model based on fair value. In that regard, we have analysed the subsequent measurement of property and plant and equipment in Serbia. We find that companies are more likely to choose the historical cost model than the revaluation model (the model based on fair value) for owner-occupied properties and plant and equipment, and the fair value model rather than the historical cost model for investment properties. The willingness to use the revaluation model for subsequent measurement of owner-occupied properties and plant and equipment varies across different categories of companies, and we find a statistically significant relationship between that willingness and the legal form of the company. We also find that in the notes to their financial statements, a significant number of companies in Serbia do not disclose adequate information on the model used for subsequent measurement of property and plant and equipment, although such information is required by the applicable financial reporting standards.

Measurement in Financial Reporting: The Need for Concepts

2013 ◽  
Vol 28 (2) ◽  
pp. 331-352 ◽  
Author(s):  
Mary E. Barth
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Fair Value ◽  
Historical Cost ◽  
Accounting Measurement ◽  
Starting Point ◽  
Subsequent Measurement ◽  
Alternative Measurement ◽  
Definition Of ◽  
Value Measurement

SYNOPSIS The Conceptual Framework neither specifies the objective or definition of accounting measurement, nor provides a conceptual basis for choosing among alternative measurement bases. This paper offers a starting point for developing measurement concepts based on existing Framework concepts, including the objective of financial reporting, the qualitative characteristics of useful financial information, and the definitions of assets and liabilities. The paper focuses on subsequent measurement of individual assets and liabilities and concludes that fair value measurement is more consistent with existing concepts than either modified or unmodified historical cost. Although unmodified historical cost is consistent with some concepts, modified historical cost—which is widely used today—largely is not. Also, aggregate amounts, such as total assets and total liabilities based on modified or unmodified historical cost, lack meaning. Because financial statements include such aggregate amounts and changes in amounts of individual assets and liabilities determine comprehensive income, measurement concepts also need to contemplate these measurements.

The effect of accounting methods on financial reporting quality

2018 ◽  
Vol 60 (6) ◽  
pp. 1401-1411
Author(s):  
Andrain Hadiyanto ◽  
Evita Puspitasari ◽  
Erlane K. Ghani
Keyword(s):  
Financial Reporting ◽  
Palm Oil ◽  
Reporting Quality ◽  
Fair Value ◽  
Financial Information ◽  
Financial Reporting Quality ◽  
Content Type ◽  
Historical Cost ◽  
Fair Value Measurement ◽  
Value Measurement

Purpose This study aims to examine the relationship between accounting measurement method of biological asset and financial reporting quality. Specifically, this study examines whether using fair value method or the historical cost method on biological asset provides different financial reporting quality. Design/methodology/approach This study uses data from 38 agricultural companies that are members of the Roundtable on Sustainable Palm Oil. The annual reports of 38 companies from the Palm Oil Growers over a five-year period starting from 2011 to 2014 are analysed. Findings This study shows that companies using historical cost measurement produce less reliable and less relevant information compared to the companies that are using fair value measurement. Research limitations/implications The results in this study imply that the use of fair value measurement improves the quality of financial information. Practical implications This study supports IASB’s justification of developing IAS 41 as the principle-based standard that better represents the financial information related to biological asset and subsequently lead to good accountability and harmonisation practices. Originality/value This study provides evidence on the best measurement to be used in agriculture activities using a larger sample size of few countries. In addition, this study contributes to the existing literature on the effect of accounting methods on financial reporting quality.

Примена опрезности у финансијском извештавању – навика или потреба? // Application of prudence in financial reporting – a habit or necessity?

2018 ◽  
Vol 13 (22) ◽  
pp. 63
Author(s):  
Ката Шкарић Јовановић
Keyword(s):  
Conceptual Framework ◽  
Financial Reporting ◽  
Empirical Studies ◽  
Financial Statements ◽  
Radical Change ◽  
Fair Value ◽  
Time Asymmetry ◽  
Historical Cost ◽  
Primary Users ◽  
Gains And Losses

Резиме: Финансијско извештавање већ више векова с правом се означава као конзервативно. Начело опрезности чија премена генерише конзервативизам, а које се одликује временском асиметријом у признавању губитака и добитака, не само да је једно од најстаријих, већ и једно од најутицајнијих правила у финансијском извештавању. Означавање инвеститора, поверилаца и осталих зајмодаваца као примарних корисника финансијских извештаја довело је до тога да се у Концептуалном оквиру финансијског извешавања неутралној презентацији финансијских извештаја даје апсолутни примат у односу на опрезност, која је означена као непожељна. Бројна емпиријска истраживања, у великој мери изазвана и оваквом радикалном променом, показала су да су користи од примене конзервативизма у финансијском извештању и у данашњим околностима такве да се увелико надилазе његове слабости. С дуге стране, неутралност се може постићи у презентацији појединих позиција финансијских извшетаја али не при постојећим околностима и финансијских извештаја у целини. Заменом опрезности са неутралношћу нарушена је конзистентност која је нужна између Концептуалног оквира за финансијско извештавање и МРС/МСФИ. У многим од МРС/МСФИ садржани су захтеви за признавање и вредновање који су засновани на опрезности. Испуњавање ових захтева неминовно води конзервативизму у презентацији финансијских извештаја. Како су МРС/МСФИ изграђени на мешовитој основи коју чине: концепт историјског трошка, с којим је чврсто повезана опрезност, и концепт фер вредности, за који се везује неутралност. Стога се сасвим основано у презентацији финансијских извештаја могу очекивати и неутрално и конзервативно презентиране информације. Враћањем опрезности у Концептуални оквир финансијског извештавања осим што би била отклоњена неконзистност која постоји између њега као основе на којој се ревидирају постојећи и доносе нови стандарди, био би потврђен допринос конзервативизма заштити интереса поверилаца и инвеститора.Summary: For many centuries financial reporting has been rightfully labeled as conservative. The principle of prudence whose application generates conservatism, which is characterized by time asymmetry in the recognition of gains and losses, is not only one of the oldest but also one of the most influential rules in financial reporting. Determining the investors, creditors and other lenders as primary users of financial statements has led to the fact that in the Conceptual Framework for Financial Reporting the neutral presentation of financial statements has the absolute precedence over prudence, which is marked as undesirable. Numerous empirical studies largely caused by such a radical change have shown that the benefits of application of conservatism in financial reporting and in the present circumstances are such that they greatly surpass its weaknesses. On the other hand, neutrality can be achieved in the presentation of certain positions in financial statements but not under the existing circumstances and financial statements in general. Substituting prudence with neutrality violates consistency, which is necessary between the Conceptual Framework for Financial Reporting and IAS/IFRS. Many of IAS/IFRS contain requests for recognition and validation that are based on the prudence. Meeting these requests will inevitably lead to conservatism in the presentation of financial statements. Since IAS/IFRS are built on a mixed basis consisting of the historical cost concept, which is tightly linked with prudence, and fair value concept, which is linked with neutrality, then it is quite reasonable to expect both neutrally and conservatively presented information in the presentation of financial statements. By restoring prudence in the Conceptual Framework for Financial Reporting, besides eliminating inconsistence that exists between it as a basis for revising existing and adopting new standards, contribution of conservatism to protecting the interests of creditors and investors would be confirmed.

scholarly journals The Foundations for a General Theory of General Purpose Financial Reporting for Business

2021 ◽  
Author(s):  
◽  
David Sutton
Keyword(s):  
General Theory ◽  
Financial Reporting ◽  
Central Element ◽  
Accounting Standards ◽  
Fair Value ◽  
General Purpose ◽  
Historical Cost ◽  
Legitimate User ◽  
Valuation Method ◽  
Value Measurement

<p>Accounting standards setters have progressively moved towards decision-useful, investor-focused fair value accounting standards for general purpose financial reporting (GPFR). With some qualification, the case is made that this development is positive for accounting as a discipline. This paper develops a referent theory of accounting to contextualize standards setters' implicit direction, derived from existing research and literature. A central element in the development of this theory is the case made for 'investor-as-GPFR user'. Against this, stakeholder theory and positive accounting theory will be identified as confounding influences on the development of a general theory of accounting. The argument is for the investor, both current and potential, as the sole legitimate user of GPFR. The practical implications of the theory are considered against the prevailing debate over optimal accounting valuation method; the debate between fair value measurement and historical cost. The case is made that a number of ostensible dichotomies in accounting thought, such as between relevance and accountability, are substantially reconcilable. The mutual exclusivity often implied of accounting information relevance and accountability-cum-reliability is rejected. The development of a general theory of accounting is timely as such a referent theory is necessary to legitimize standards setting and secure accounting's place in an increasingly diverse financial information market. Inferentially, trends in the evolution of fair value standards reflect the dominant concern to meet threats to the discipline as a whole; this standard setting trend qualified in speed and degree by the narrow interests of 'constituents'.</p>

scholarly journals Conceptual framework and measurement: A survey on the international debate

2015 ◽  
Vol 12 (4) ◽  
pp. 24-37
Author(s):  
Giusy Guzzo ◽  
Massimo Costa
Keyword(s):  
Conceptual Framework ◽  
Financial Reporting ◽  
Cost Accounting ◽  
Fair Value ◽  
Policy Implications ◽  
Mixed System ◽  
Fair Value Accounting ◽  
International Debate ◽  
Historical Cost ◽  
Historical Cost Accounting

In response to the ‘2011 Agenda Consultation’, the IASB launched in July 2013 a call for a new Discussion Paper on the ‘Conceptual Framework for Financial Reporting’. This article aims to offer a contribution to the debate on the effectiveness of the theme of ‘Measurement’, by investigating the use of the current evaluation models in the literature and practice of Financial Reporting. The article proposes at first a historical survey both of the international debate on Fair Value Accounting vs. Historical Cost Accounting and of the Italian theories on the valuation. Later the paper proposes some considerations about the key questions related to Measurement and the possible policy implications of the main research finding, by conceptualising a ‘mixed’ system combining fair value Accounting and historical cost Accounting to try giving a more rational base to the financial reports.

scholarly journals Accounting For Agricultural Products: US Versus IFRS GAAP

2013 ◽  
Vol 11 (2) ◽  
pp. 79 ◽  
Author(s):  
Treba Marsh ◽  
Mary Fischer
Keyword(s):  
Financial Reporting ◽  
Fair Value ◽  
Financial Statement ◽  
International Accounting ◽  
Accounting Standard ◽  
Historical Cost ◽  
Financial Reporting Standards ◽  
The Us ◽  
Accounting Recognition ◽  
International Accounting Standard

Currently there is a mix of accounting guidance for agriculture producers in the US that is both GAAP including Accounting Statement Codification 905 and non-GAAP financial guidelines. Should the US adopt International Financial Reporting Standards (IFRS), this guidance would be replaced with International Accounting Standard (IAS) 41 Agriculture. This study identifies systematic differences between the US and International accounting and reporting for agricultural assets and products. The study also finds that international and US agricultural accounting recognition and reporting guidance result in dissimilar reporting due to guidance interpretation. Valuation variances and definition differences including the requirement to change the agricultural asset recognition method from historical cost to fair value continue to be the basis of major reporting differences. Current US guidance on recognizing and reporting agricultural assets is more conservative than the international guidance. Overall, the US agricultural recognition and reporting guidance contains less information and is therefore less beneficial to financial statement users.

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.

A Dictionary of Accounting

2016 ◽  
Author(s):  
Jonathan Law
Keyword(s):  
Financial Reporting ◽  
Financial Stability ◽  
Fair Value ◽  
Financial Accounting ◽  
Asia Pacific ◽  
Reporting Standard ◽  
Hedge Accounting ◽  
Accounting Scandals ◽  
The Republic ◽  
The Uk

Over 3,900 entriesThis best-selling dictionary contains entries on all aspects of accounting, including financial accounting, financial reporting, management accounting, taxation, auditing, corporate finance, and accounting bodies and institutions. Its international coverage includes important terms from the UK, US, Australia, India, and Asia-Pacific.New entries reflect the latest developments in the accounting profession, e.g. Accounting Council, European Financial Stability Mechanism, and General Anti-Abuse Rule. Existing entries have been updated to cover the latest developments, most notably the Financial Reporting Standard Applicable in the UK and the Republic of Ireland, which sets out new rules in areas such as goodwill, hedge accounting, and fair value accounting. There is increased coverage of topics such as corporate governance, accounting ethics, accounting scandals, and major firms and professional bodies.This dictionary is essential for students and professionals in accounting and finance, and an ideal source of reference for anyone seeking a clear guide to the often-confusing world of accountancy terms.

scholarly journals Fair Value and Abnormal Audit Fees

2018 ◽  
Vol 8 (3) ◽  
pp. 91
Author(s):  
Tatyana S Ryabova ◽  
Keji Chen ◽  
Gary Taylor ◽  
Rishma Vedd
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Audit Fees ◽  
Fair Value ◽  
Preliminary Evidence ◽  
Financial Reporting Quality ◽  
Accounting System ◽  
Fair Value Accounting ◽  
Historical Cost ◽  
Cost Accounting System

Our study compares the financial reporting quality between a principles-based (i.e., fair value) and a rules-based (i.e., historical cost) accounting system. We explore a non-market based proxy of financial reporting quality: abnormal or unexplained audit fees. Utilizing a sample of European Union firms, we find that firms using a fair value accounting system have a lower level of abnormal audit fees. This result provides preliminary evidence that a fair value accounting system provides higher financial reporting quality.

Financial Reporting and Financial Crises: The Case for Measuring Financial Instruments at Fair Value in the Financial Statements

2011 ◽  
Vol 25 (2) ◽  
pp. 409-417 ◽  
Author(s):  
Thomas J Linsmeier
Keyword(s):  
Financial Reporting ◽  
Financial Crises ◽  
Cost Model ◽  
Financial Statements ◽  
Fair Value ◽  
The United States ◽  
Lessons Learned ◽  
Bank Failures ◽  
Financial Instruments ◽  
Financial Condition

SYNOPSIS The Financial Accounting Standards Board (FASB) (2010) proposes that all financial instruments be measured at fair value in the financial statements. This commentary provides one Board member's reasoning for supporting this proposal, which is based on (1) evidence that the amortized cost model failed to provide timely information about the deteriorating financial condition of failed banks in the current financial crisis, (2) lessons learned from prior financial crises affecting financial institutions in the United States and Japan, and (3) research evidence indicating that fair value measures are most highly correlated with banks' exposures to interest rate and credit risk—two key risk exposures that have led to bank failures in the three most recent financial crises.

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