The winding road to fair value accounting in China: a social movement analysis

2018 ◽  
Vol 31 (4) ◽  
pp. 1257-1285 ◽  
Author(s):  
Kathryn Bewley ◽  
Cameron Graham ◽  
Songlan Peng
Keyword(s):  
Movement Analysis ◽  
Fair Value ◽  
Social Infrastructure ◽  
Fair Value Accounting ◽  
Accounting Standard ◽  
Unsuccessful Attempt ◽  
Content Type ◽  
Conservative Accounting ◽  
Structured Analysis ◽  
Key Resources

Purpose The purpose of this paper is to examine China’s stop-start adoption of fair value accounting (FVA) into its national accounting standards. The paper analyzes how FVA standards promoted by transnational organizations were eventually adopted in China despite its conservative accounting traditions. Design/methodology/approach The study uses archival records and an analytic framework adapted from the studies of social movements to identify the institutional factors that differ between China’ first unsuccessful attempt to adopt FVA and its second successful attempt. Findings Shared interests of elite national and international groups, creation of social infrastructure, marshaling of key resources, and specific actions to frame FVA standards are found to be crucial factors supporting FVA reform in China. Practical implications The study helps advance our understanding of dissemination of international accounting regulations in non-Western societies. The findings can help accounting standard setters to avoid costly failures. Originality/value The study provides a structured analysis of the propagation of global accounting regulations. It exposes the factors in the failure and success of FVA adoption in China.

On theoretical engorgement and the myth of fair value accounting in China: a reply

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kathryn Bewley ◽  
Cameron Graham ◽  
Songlan Peng
Keyword(s):  
Accounting Standards ◽  
Movement Analysis ◽  
Fair Value ◽  
Research Approach ◽  
Fair Value Accounting ◽  
Political Factors ◽  
Content Type ◽  
Accounting Research

PurposeThis article is a reply to “On theoretical engorgement and the myth of fair value accounting in China” Nobes (2019) from the authors of “Adaptability to fair value accounting in an emerging economy: A case study of China's IRFS convergence” (Peng and Bewley, 2010) and “The Winding Road to Fair Value Accounting in China: A Social Movement Analysis” (Bewley et al., 2018).Design/methodology/approachThis article engages directly with the arguments of the criticism.FindingsThis article argues that the author of the commentary misunderstands the purpose, content and findings of both papers. By providing only a narrowly focused technical analysis of the new Chinese accounting standards, the author fails to see that their qualitative research approach reveals important, complex social and political factors at play in China's attempts to adopt modern international accounting principles. The commentary expresses a view that accounting is a neutral technology that needs only to be clearly defined and enumerated to be correctly implemented, whereas this research takes a much broader and deeper perspective. The authors seek to understand how China was able to successfully adopt fair value accounting standards in 2006, whereas an earlier attempt to introduce fair value in 1998 had led to abuse of fair value measurements and the eventual repeal of fair value regulations in 2001.Practical implicationsThis article helps clarify the purpose of qualitative accounting research, the role of theory in such research and the usefulness of theory in describing and explaining empirical case facts related to changes in accounting standards, particularly in an international context.Originality/valueThis article contributes to a better appreciation of qualitative accounting research.

Fair value accounting from the users’ perspective: an experiment on how financial analysts rely on fair value estimates in their decisions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alessandra Allini ◽  
Rosanna Spanò ◽  
Ning Du ◽  
Joshua Ronen
Keyword(s):  
Default Risk ◽  
Financial Analysts ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Accounting Standard ◽  
Content Type ◽  
Historical Cost ◽  
Other Comprehensive Income ◽  
Loan Approval ◽  
Risk Judgments

Purpose The current paper aims to understand whether fair value accounting (FVA) affects analysts’ loan approval decisions and default risk judgments. Design/methodology/approach This study focusses on three issues: unrealized gain or loss resulting from FV measurement recognized in other comprehensive income (OCI), recognition of assets at FV or historical cost and the disclosure or non-disclosure of the FV of collateral assets. It uses an experiment carried out with a sample of 29 CFA analysts. Findings The results show that all three issues have a significant effect on analysts’ judgment and decision-making in processing FV estimates. Originality/value The paper extends knowledge on how financial analysts perceive FV estimates and disclosure and may help the accounting standard boards assess the challenges facing analysts when they apply professional judgments in interpreting FV measurements and disclosures. Moreover, it offers fresh views to the debate on the decision usefulness of FVA, particularly relevant in the post-implementation review of IFRS 13.

Fair value and banking contagion

2016 ◽  
Vol 7 (3) ◽  
pp. 215-236 ◽  
Author(s):  
Leila Gharbi ◽  
Halioui Khamoussi
Keyword(s):  
Data Model ◽  
Banking Sector ◽  
Fair Value ◽  
Islamic Banks ◽  
Fair Value Accounting ◽  
Content Type ◽  
Gcc Countries ◽  
Conventional Banks ◽  
Value Changes ◽  
The Impact

Purpose This paper aims to explore empirically the impact of fair value accounting on banking contagion in a comparative context between Islamic banks and conventional banks. Design/methodology/approach The analysis of the impact of fair value changes on banking contagion is carried out through a panel data model. This study covers 20 Islamic banks and 40 conventional banks operating in the Gulf Cooperation Council (GCC) countries during nine years from 2003 to 2011. Findings Empirical evidence shows that there is a significant change in dynamic volatility in GCC banking sector because of financial crisis 2008. However, results fail to confirm the hypothesis that fair value accounting is significantly associated with an increase of banking contagion for both Islamic and conventional banks operating in GCC countries. Originality/value The outcome of this study provides some insights for academicians, accountants as well as regulators in terms of enhancing the effectiveness of accounting practices.

Toward an optimal hedging strategy considering earnings volatility through fair value accounted financial derivatives

2016 ◽  
Vol 17 (3) ◽  
pp. 310-327
Author(s):  
Eva Marie Ebach ◽  
Michael Hertel ◽  
Andreas Lindermeir ◽  
Timm Tränkler
Keyword(s):  
Fair Value ◽  
Income Smoothing ◽  
Sensitivity Analyses ◽  
Financial Industry ◽  
Fair Value Accounting ◽  
Trade Off ◽  
Content Type ◽  
Earnings Volatility ◽  
Market Values ◽  
Optimal Hedging

Purpose The purpose of this paper is to determine a financial institution's optimal hedging degree under consideration of costly earnings volatility induced by fair value accounted derivatives. The discussion on the adoption of fair value accounting in the financial industry has been rather controversial in recent years. Under this accounting regime, the change in market values of specific assets must be considered as profit or loss. Critics argue that fair value accounting induces higher earnings volatility compared to historical cost accounting and, therefore, may initiate a downward spiral during recessions. Thus, increased earnings volatility induces costs, which can be explained by disappointed capital market expectations. Consequently, in general, a lowering of earnings volatility will be rewarded. Consistent with this theoretical finding, empirical research provides strong evidence that companies pursue income smoothing to reduce earnings volatility. In contrast to industrial corporations, financial institutions may easily reduce their earnings volatility by engaging in additional hedging activities. However, more intense hedging usually reduces expected profits. Design/methodology/approach Based on a research project initiated by a large German bank, this study quantitatively models the trade-off between the (utility of) costs of earnings volatility and the reduction of profit potential through additional hedging. Findings By conducting sensitivity analyses and simulations of the crucial factors of the trade-off, we examine relevant causal relationships to obtain first indications about the economic benefits of income smoothing. Originality/value To the best of our knowledge, we are the first to develop an optimization model that supports decision-making by attempting to determine an optimal (additional) hedging degree considering the costs induced by earnings volatility.

scholarly journals MENGUPAS PERSOALAN STANDAR AKUNTANSI KEUANGAN - GOODWIL DI BERBAGAI NEGARA : SUATU PENDEKATAN STUDI LITERATUR

2017 ◽  
Vol 2 (2) ◽  
Author(s):  
Deddy Kurniawansyah
Keyword(s):  
Research Method ◽  
Intangible Assets ◽  
Accounting Standards ◽  
Financial Statements ◽  
Fair Value ◽  
Financial Accounting ◽  
International Accounting Standards ◽  
Fair Value Accounting ◽  
Literature Study ◽  
Accounting Standard

This literature study explains and describe the development of the concept of goodwill from the perspective of accounting by observing and describing until the development at this time, discusses differences in accounting standards of goodwill applicable in some countries, and explains the things that contradict the goodwill. This research method used qualitative with literature study. The results of this study are in some countries, the concepts and rules on goodwill accounting have undergone various changes, including international accounting standards issued by the IASC. Initially goodwill is capitalized and amortized over no more than 20 years. But, along with the increasing use of fair value accounting in accounting standards, thetreatment for goodwill also experienced a shift that is eliminated by the amortization method is replaced by doing impairment test to goodwill. The results of this study contribute as add to the treasury of financial accounting literature, especially accounting treatment of goodwill as intangible assets in the financial statements of various countries such as Indonesia, America and the England.Keyword :Goodwiil, Impairment, Financial Accounting Standard

The localised accounting environment in the implementation of fair value accounting in Indonesia

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bernadia Linggar Yekti Nugraheni ◽  
Lorne Stewart Cummings ◽  
Alan Kilgore
Keyword(s):  
Emerging Economies ◽  
Accounting Standards ◽  
Fair Value ◽  
Successful Implementation ◽  
Fair Value Accounting ◽  
Structured Interviews ◽  
Content Type ◽  
Emerging Country ◽  
Government Involvement

Purpose This case study aims to investigate the role of actors in the implementation of fair value standards in an emerging country, Indonesia. Design/methodology/approach This study uses semi-structured interviews with important actors within the local accounting profession, standard setting and regulatory environment, to analyse fair value accounting implementation. This study also incorporates information from press releases and newspapers, to provide a more comprehensive picture of fair value implementation. Findings First, professionals undertake routine actions, cultivate interests and strategically navigate their environment during the process of fair value standard implementation. Second, the role of appraisers becomes more prominent during this process. Third, government involvement is significant in ensuring the successful implementation of global accounting standards. Research limitations/implications First, differing localised contexts, including communities and actors, may shape how an emerging country undertakes the diffusion and implementation of global standards, which in turn can also lead to institutional change. Second, government involvement is crucial in supporting the implementation of global accounting standards within emerging economies. Third, implementing market-based measurements within emerging economies characterised by a lack of an active and liquid market may present challenges. Practical implications Third, implementing market-based measurements within emerging economies characterised by a lack of an active and liquid market may present challenges. Originality/value This study applies the concept of Institutional Work within Institutional Theory to explain how fair value standards are implemented within a localised emerging economy characterised by unique actor roles and goal-directed action.

Fair value accounting, earnings management, and the case of bargain purchase gain

2019 ◽  
Vol 28 (2) ◽  
pp. 229-253
Author(s):  
Steven Lilien ◽  
Bharat Sarath ◽  
Yan Yan
Keyword(s):  
Design Methodology ◽  
Fair Value ◽  
Control Group ◽  
Fair Value Accounting ◽  
Market Returns ◽  
Accounting Earnings ◽  
Content Type ◽  
Level 3 ◽  
Accounting Earnings Management

Purpose The purpose of this paper is to investigate the association between bargain purchase gains (BPGs) booked by the acquirer and smoothing of acquirers’ earning performance across time. Design/methodology/approach The authors use a sample of 122 bargain purchase acquisitions in non-financial industries from 2009 to 2012 and a pair-match control group of 122 goodwill acquisitions. Findings The authors find that BPGs, and in particular, the Level-3 fair value estimates of intangible assets acquired, have consistently been used to smooth earnings but that such smoothing activities are not associated with long-term market returns. Originality/value This study is the first one to investigate bargain purchase acquisitions in a broad range of non-financial industries and suggests that managers are using the valuation of intangibles to avoid unfavorable earnings even though these valuations are not credible to investors.

scholarly journals The (un)suitability of fair-value accounting in emerging economies: the case of Vietnam

2019 ◽  
Vol 15 (2) ◽  
pp. 170-197 ◽  
Author(s):  
Lisa-Uyen Nguyen
Keyword(s):  
Financial Reporting ◽  
Institutional Environment ◽  
Fair Value ◽  
Business Environment ◽  
Future Research ◽  
Critical Examination ◽  
Fair Value Accounting ◽  
Structured Interviews ◽  
Corporate Misconduct ◽  
Content Type

Purpose This study aims to explore the suitability and challenges of implementing fair value accounting (FVA) in Vietnam, an emerging/transitioning economy. While such implementation would enable convergence with International Financial Reporting Standards, standard setters and auditors have raised practical concerns about its adoption. Design/methodology/approach This qualitative study uses semi-structured interviews with regulators and auditors, together with an analysis of two fraud cases that illustrate the business environment in Vietnam. Public, private and capture theories guide the analysis. Findings The business and institutional environment in Vietnam creates several impediments to FVA being effectively implemented and transparently applied. Given the major challenges identified regarding the infrastructure necessary for this valuation system, the premature adoption of FVA may become a catalyst for corporate misconduct. Research limitations/implications The findings are derived from data aggregated from two fraud cases and interviews, and as such, the results may not be generalisable to other settings. However, these findings may inform future research, particularly after the Ministry of Finance provides further guidance on the use of FVA in Vietnam. Practical implications A timely and critical examination of the challenges of implementing FVA in a transitioning economy is provided, and the two fraud cases reveal the complexities of the business environment in Vietnam. Originality/value This research gives voice to the tensions that developing countries are confronting as they seek to balance external pressures with internal constraints. The introduction of an assemblage of three theoretical lenses enables insights into contemporary issues associated with applying FVA in such settings.

Issues on the application of IFRS9 and fair value measurement for Islamic financial instruments

2016 ◽  
Vol 7 (3) ◽  
pp. 202-214 ◽  
Author(s):  
Zurina Shafii ◽  
Abdul Rahim Abdul Rahman
Keyword(s):  
Cash Flow ◽  
Fair Value ◽  
Financial Assets ◽  
Financial Instruments ◽  
Fixed Rate ◽  
Accounting Standard ◽  
Content Type ◽  
Starting Point ◽  
Fair Value Measurement ◽  
Value Measurement

Purpose This paper aims to examine some issues in IFRS9 with regards to classification and measurement of Islamic financial assets. In addition, the paper discusses the Shariah concerns on the use of fair value to measure financial assets. Design/methodology/approach This paper adopts qualitative method via the study of documents and textual analysis of Shariah opinions of scholars and relevant accounting standards. Findings The paper found that the classification and measurement of equity-based Islamic financial assets do not fit into the “default” classification category of amortised cost, as the future cash flow receivable does not constitute solely the payment of principal and interest (fixed rate payment). With regards to fair value measurement, Shariah concern arises during the adoption of fair value at Level 2 (reference of asset values from input other than quoted prices in active markets) and Level 3 (use of discounted cash flow method to arrive to asset valuation) because of the existence of in uncertainty or gharar as compared to Level 1 (fair value referred to quoted prices of similar assets). Practical implications Findings of the paper provide a starting point for a debate and extensive research on issues related to classification and measurement of Islamic financial assets and the use of fair value as a method of subsequent revaluation of Islamic financial assets. The Shariah analysis in the paper is useful for International Accounting Standard Board to engage with Islamic financial institutions and local accounting standard setters to reflect the unique nature of Shariah-compliant financial instruments. The paper serves as a basis to devise technical solutions to address accounting and reporting issues of Islamic financial instruments. Originality/value The paper offers Shariah analysis on the issue of classification, measurement and impairment model for Islamic financial assets. The paper is considered as the first paper that examines areas of possible tensions when applying IFRS9 to the accounting of Islamic financial assets. In addition, the paper has contributed to the literature in Islamic accounting and auditing.

Fair value accounting choice

2015 ◽  
Vol 8 (2) ◽  
pp. 130-152 ◽  
Author(s):  
Inês Pinto ◽  
Manuel Caldeira Pais
Keyword(s):  
Financial Reporting ◽  
Fair Value ◽  
Accounting Conservatism ◽  
Accounting Choice ◽  
Fair Value Accounting ◽  
Content Type ◽  
Fund Managers ◽  
Asset Value ◽  
Accounting Model ◽  
The Impact

Purpose – Profiting from a unique research opportunity in the Portuguese REIFs market, this paper aims to investigate the impact of fund managers ' accounting choice on funds ' returns distribution and analyses the relationship between fair value accounting choice and conditional accounting conservatism. Design/methodology/approach – According to Portuguese securities market regulation, fund managers of REIFs can fix the value of the fund properties between the acquisition cost and the average of the appraisal values assigned periodically by two independent appraisers. Therefore, through the analysis of fund managers’ actual choice to value REIF net asset value in comparison with a mandatory adoption of a pure fair value method (appraisers’ valuations), the paper investigates the impact of accounting choice on funds’ return series. On the other hand, an analysis at fund level is also conducted to determine the consequences of fair value accounting choice on the ability of fund managers in delaying the recognition of asset value decreases (bad news). Findings – Results indicate that in the period of financial crisis, significant differences in REIF returns according to the accounting method used to value properties are observed. There is also evidence that fund managers of open-end funds that are subject to greater market pressure to meet financial reporting objectives are more likely to smooth book value returns. Additionally, findings support the hypothesis that REIFs that use a more historical cost accounting model exhibit a lower degree of conditional accounting conservatism, suggesting that the use of fair value may be useful to reduce fund manager discretion in delaying the recognition of losses. Originality/value – This paper provides an empirical evidence of one possible positive effect of the use of fair value on the quality of financial reporting, evidencing how a more fair value accounting model may limit fund managers’ discretion.

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