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.

scholarly journals Fair Value Accounting: Implementation Challenges Facing Small and Medium-Sized Entities in the Agricultural Sector

2018 ◽  
Vol 8 (4) ◽  
pp. 60
Author(s):  
Joseph Kwasi Agyemang ◽  
Owusu Acheampong ◽  
Wiafe Nti Akenten
Keyword(s):  
Financial Reporting ◽  
Agricultural Sector ◽  
Fair Value ◽  
International Standards ◽  
Reporting Standards ◽  
Fair Value Accounting ◽  
Implementation Challenges ◽  
Financial Reporting Standards ◽  
Regulatory Bodies ◽  
Value Reporting

Nowadays, the relevance of fair value in financial reporting is gaining impetus and recent discussions are moving in the trend of full fair value reporting. Small and medium-sized entities are not ignored in this instance. The move to new reporting standards results in various challenges for different interest groups such as auditors, preparers and regulators. The main objective of the study was to establish the fair value implementation challenges facing SMEs in the agricultural sector with evidence from regulatory bodies in Ghana. The study established that there is lack of methodological relationship between existing local laws and IFRS and absence of involvement of regulatory bodies in financial reporting standards setting. In light of these challenges, the study recommends involvement of regulatory bodies in standard setting and consideration should also be given to local laws when setting international standards.

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 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 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 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 Fair Value Accounting: Affect On The Auditing Profession

2010 ◽  
Vol 26 (3) ◽  
Author(s):  
Danny Pannese ◽  
Alan DelFavero
Keyword(s):  
Multinational Corporations ◽  
Financial Reporting ◽  
Accounting Standards ◽  
Fair Value ◽  
Financial Accounting ◽  
Credit Crisis ◽  
Fair Value Accounting ◽  
Financial Reporting Standards ◽  
Business Entities ◽  
Recent Financial Crisis

<p class="MsoNormal" style="text-align: justify; line-height: normal; margin: 0in 0.5in 0pt;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; color: black; font-size: 10pt; mso-themecolor: text1;">During this period of global markets, multinational corporations are demanding financial accounting standards with enhanced uniformity. In an effort to achieve this objective, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working together on the Convergence Project, aiming to develop accounting standards that closely correlate with international financial reporting standards.<span style="mso-spacerun: yes;">&nbsp; </span>In September 2006 and February 2007, the FASB issued two key fair value accounting (FVA) standards which focused on providing guidelines for fair value measurement (through a classification hierarchy), expanding disclosure requirements, and also allowing business entities to increase FVA&rsquo;s application.<span style="mso-spacerun: yes;">&nbsp; </span>However, the recent financial crisis has placed increased scrutiny on estimates derived under FVA.<span style="mso-spacerun: yes;">&nbsp; </span>Consequently, a spotlight has been placed on the auditing profession, as the effectiveness of an auditor&rsquo;s ability to test estimates derived under FVA has been questioned due to numerous firms approaching collapse in the midst of the credit crisis. <span style="mso-spacerun: yes;">&nbsp;</span>Thus, the purpose of this paper is to present the challenges auditors face when auditing FV estimates, and to discuss the profession&rsquo;s capability of adapting to FVA in the future.<span style="mso-spacerun: yes;">&nbsp; </span></span></p>

Transparency of Fair Value Accounting and Tax

2014 ◽  
pp. 476-494
Author(s):  
Eva Eberhartinger ◽  
Soojin Lee
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Accounting Standards ◽  
Fair Value ◽  
Reporting Standards ◽  
Fair Value Accounting ◽  
Financial Reporting Standards ◽  
Comprehensive Income ◽  
Accounting Measurement ◽  
Other Comprehensive Income

This chapter examines transparency in fair value accounting (measurement, presentation, additional disclosure), with special emphasis on tax disclosure and on the presentation of fair values in the statement of other comprehensive income. After considering the international relevance of the International Financial Reporting Standards, the chapter discusses fair value accounting in the context of accounting standards. It then reviews prior research to determine whether fair value accounting adds to accounting transparency. It also looks at the measurement and presentation of the transparency of fair value accounting based on relevance and reliability, along with issues of earnings management and procyclical effects.

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.

Bioscience Company: Accounting for Idle Plant Assets

2011 ◽  
Vol 26 (1) ◽  
pp. 155-162 ◽  
Author(s):  
Victoria Dickinson ◽  
Paul Kimmel ◽  
Terry Warfield
Keyword(s):  
Financial Reporting ◽  
Fair Value ◽  
Intermediate Level ◽  
Accounting Students ◽  
Reporting Standards ◽  
Fair Value Accounting ◽  
Financial Reporting Standards ◽  
Technical Examination ◽  
Productive Assets ◽  
Measurement Approach

ABSTRACT: Bioscience Company and its auditors have been in discussions with the SEC concerning the accounting for its long-lived assets. Among the issues being discussed is the company’s discontinuation of depreciation on productive assets that it had used previously, but it was not currently using. The case permits a technical examination of depreciation and impairment accounting issues with consideration of the FASB’s asset/liability measurement approach, fair value accounting, use of the FASB Codification, and comparisons to International Financial Reporting Standards. The case requirements are divided into basic requirements, which would be appropriate for intermediate level students; and advanced requirements, which would be more appropriate for accounting seniors, as well as M.B.A. and fifth-year accounting students.

scholarly journals Fair Value Concept Specifics in Financial Reporting and Auditing

2015 ◽  
Vol 53 (1) ◽  
pp. 119-141
Author(s):  
Bojan Rupić ◽  
Ljiljana Bonić
Keyword(s):  
Financial Reporting ◽  
Information Needs ◽  
Technological Development ◽  
Financial Statements ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Historical Cost ◽  
Modern Business ◽  
Net Assets ◽  
Value Concept

AbstractInvestors have become the most important users of financial statements in modern business conditions, and mixed base of financial reporting has been established in order to meet their information needs and it includes elements of the concept of historical cost and the fair value concept, with an increasing shift towards the fair value concept. The primary task of fair value accounting becomes the expression of the fair value of the net assets at the reporting date, while the financial results represent the change in fair value of net assets between the two reporting periods. In our country the application of the "full IFRS" is mandatory for large enterprises and the application of IFRS for SMEs is mandatory for small and medium-sized entities, thus fair value accounting becomes an integral part of the financial statements of domestic companies. However, fair value accounting is not a suitable concept for our country characterized by shallow and underdeveloped financial market, companies whose owners are the company managers at the same time, and low level of economic and technological development. A financial statement audit in terms of the use of the fair value concept becomes much more demanding and complex than the audit of the financial statements based on historical cost accounting.

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