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.

scholarly journals Exploring the Relevance and Reliability of Fair Value Accounting

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Yoshitaka Fukui ◽  
Shizuki Saito
Keyword(s):  
Measurement Method ◽  
Fair Value ◽  
Faithful Representation ◽  
Financial Assets ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
Fair Value Measurement ◽  
Value Measurement ◽  
Qualitative Characteristics ◽  
Relevance And Reliability

AbstractWhile the FASB had regarded relevance and reliability as two of the most important qualitative characteristics for years, it replaced reliability with faithful representation revising its Concepts Statement No. 2 in 2010. Even if fair values are relevant for the measurement of assets and liabilities, these figures are not necessarily reliable or verifiable. We believe this point is the central message of Ramanna, K. (2019). Unreliable accounts: How regulators fabricate conceptual narratives to diffuse criticism. Accounting, Economics and Law: A convivium forthcoming. The application of fair value measurement has been substantially extended recently to income recognition of not-for-trading financial instruments and even non-financial assets. Is this extension due to the primacy of relevance over reliability, or the relaxing of requirement for reliability toward faithful representation? Whatever measurement method we use, it is absolutely necessary to construct a system of concepts on which the purpose of measurement should be established. In spite of the fact that any measurement method is a means to intended purposes, if we first chose a particular method and applied it to every situation slavishly, we would become similar to a bogus doctor selling a fake drug as panacea valid for any disease.

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.

Fair value, corporate governance, social responsibility disclosure and banks’ performance

2019 ◽  
Vol 19 (1) ◽  
pp. 30-47 ◽  
Author(s):  
Yi Zhang ◽  
Gin Chong ◽  
Ruixin Jia
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Social Responsibility ◽  
Fair Value ◽  
Content Type ◽  
Fair Value Measurement ◽  
Level 3 ◽  
Value Measurement ◽  
Fair Value Measurements ◽  
Corporate Disclosures

Purpose The purpose of this paper is to investigate the interaction between mandatory disclosures and voluntary disclosures of banks and the information content of corporate disclosures on firm performance. Design/methodology/approach Based on the US-listed banks from 2007 to 2015, this paper examines the interplay among the fair-value measurement, corporate governance disclosure and voluntary social responsibility disclosure. In addition, the paper examines the extent of such disclosure of mandatory items (fair-value measurement) versus voluntary items (corporate governance and social responsibility issues) on banks’ performance in terms of their return on equity and return on asset. Findings This paper finds that banks with a higher social responsibility disclosure score and stronger corporate governance tend to have lower percentages of Level 3 fair-value assets. Banks with a higher Level 3 fair-value asset disclosure have a lower financial performance. Practical implications This paper provides evidence of the interplay of various corporate disclosures by banks and implies that banks use fair-value measurements to disguise their poor performance. The findings provide insights for the policymakers, investors and regulators to assess banks’ disclosure. Originality/value This paper extends the study of banks’ fair-value measurements and is the first study to examine the interaction between voluntary and mandatory disclosures. This study sheds lights on the theories of performativity, agency and stakeholder by demonstrating the information contents of corporate disclosures on firm performance.

scholarly journals Fair value measurements of exchange-traded funds

2015 ◽  
Vol 23 (3) ◽  
pp. 331-347 ◽  
Author(s):  
Wessel Marthinus Badenhorst
Keyword(s):  
Value Relevance ◽  
Fair Value ◽  
Recent Change ◽  
Exchange Traded Funds ◽  
Content Type ◽  
Bid Ask Spread ◽  
Fair Value Measurement ◽  
Investment Portfolios ◽  
Value Measurement ◽  
Fair Value Measurements

Purpose – This paper aims to investigate the extent to which different prices within the bid-ask spread are used for fair value measurements and evaluate the potential consequences thereof. Design/methodology/approach – The paper investigates different Level 1 fair value measurements of exchange-traded funds’ (ETFs) equity investments. Using descriptive methods, it compares actual and stated fair value measurement policies. In addition, comparative value relevance of these measurements is investigated in regression analysis. Findings – Most fair value measurements are based on closing prices, but stated accounting policies and actual measurements frequently differ. Results also show that the bid-close spread of underlying investments is value-relevant in determining the bid-close spreads of ETFs themselves. Research limitations/implications – Findings are specific to unleveraged ETFs, the sample country and sample period used and only apply to investments in listed equities. Conclusions from this study may assist in predicting market perceptions of the risk of listed equity portfolios. Practical implications – This paper sheds light on the practical impact of the recent change in fair value measurement guidance. Originality/value – This study provides evidence on the size of the bid-ask spread of actual investment portfolios and its potential impact. It shows that bid-close spreads of underlying investments are used to price the bid-close spreads of ETFs themselves and that stated and actual accounting policies often differ. Findings imply that standard-setters might be influenced by actual accounting practices.

Fair value measurement of inventories and property, plant and equipment in the Russian accounting of organizations that are not budgetary sphere organizations: scope and features of formation

2021 ◽  
pp. 6-15
Author(s):  
Emilia Sergeevna Druzhilovskaya
Keyword(s):  
Method Comparison ◽  
Fair Value ◽  
Healthcare Organizations ◽  
Accounting Standard ◽  
Broad Application ◽  
Fair Value Measurement ◽  
Analysis And Synthesis ◽  
Grouping Method ◽  
Value Measurement ◽  
First Time

The Federal Accounting Standard (FAS) 5/2019 “Inventories” provides for a fairly broad application of fair value measurement of the inventories of non-budgetary sphere organizations (including healthcare organizations). An even more active use of fair value is suggested by FAS 6/2020 for the measurement of property, plant and equipment of the aforementioned organizations. The specified value is entered into the domestic accounting of the listed assets for the first time and is unusual for many Russian accountants. All this indicates the relevance of a detailed study of issues related to the fair value measurement of inventories and property, plant and equipment of the aforementioned organizations. In this article, the scope and features of the formation of this measurement are investigated. Other issues related to this measurement will be analyzed by us in the next article. The research methods were analysis and synthesis, grouping method, comparison, analogy method, logical approach, systemic approach. As a result of the research carried out, the article defines the scope of the fair value measurement of inventories and property, plant and equipment in the Russian accounting of organizations that are not budgetary sphere organizations, analyzes the features of the formation of such a measurement of these assets, identifies the most important problematic issues in this area and identifies ways to solve them.

The value relevance of the fair value hierarchy. Empirical evidence from the European Union

2018 ◽  
pp. 7-35
Author(s):  
Alessandro Mechelli ◽  
Vincenzo Sforza ◽  
Alessandra Stefanoni ◽  
Riccardo Cimini
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Fair Value ◽  
Capital Adequacy ◽  
Financial Instruments ◽  
The European Union ◽  
Accounting Standard ◽  
Management Behaviour ◽  
Value Hierarchy ◽  
Value Measurement

This paper investigates the value relevance of the fair value hierarchy disclosed for financial instruments through a sample of 97 financial entities listed over the period 2011-2016 in the stock markets of 23 European countries. Its main objectives are threefold. First, by analysing the European setting, the paper means to study the value relevance of the fair value hierarchy to judge the choice of the International Accounting Standard Board (IASB) to extend the disclosure of the hierarchy to all the assets and liabilities. Second, the paper aims to evaluate the choice of abandoning management intent as a criterion for the classification and measurement of financial instruments investigating the effect that such an intent has on the value relevance of the fair value hierarchy. Finally, by studying the effect that exposure to risks has on the value relevance of the fair value hierarchical levels, the paper plans to investigate the implications that the disclosure of the hierarchy could have on the rules of Basel 3 capital adequacy. Formulating three different research hypotheses, the findings validate them providing evidence that the value relevance of fair value measurement depends on the source of inputs used to estimate fair value and that both management intent and the risk intensity of the asset book only affect the value relevance of the less reliable fair value estimates. These results are useful for standard setters and regulators. Actually, for the investors decisions, they suggest the importance of disclosing the fair value hierarchy for all the assets and liabilities as required by IFRS 13, as well as the advantage of replacing in IFRS 9 the management intent criterion with the business model test and the characteristics of the instruments for the classification and measurement of financial assets. For the future, the findings suggest the opportunity to introduce filters within the common equity tier 1 for the less reliable fair value estimates. This paper's current and future implications for standard setters and regulators are to avoid earnings management and capital management behaviour possibly affecting the quality of financial reporting.

Challenges in auditing fair value measurement and accounting estimates

2020 ◽  
Vol 18 (1) ◽  
pp. 51-75
Author(s):  
Babajide Oyewo ◽  
Ebuka Emebinah ◽  
Romeo Savage
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Fair Value ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Content Type ◽  
Significant Difference ◽  
Accounting Estimates ◽  
Fair Value Measurement ◽  
Value Measurement

Purpose Following the issuance of International Financial Reporting Standard 13 on fair value measurement (which became operational from January 2013), this study aims to investigate post-implementation challenges in the audit of fair value measurement and accounting estimates in the Nigerian context. Design/methodology/approach Data-collection was through a structured-questionnaire administered on 400 auditors from diverse backgrounds in terms of audit firm size, international affiliation and global presence. Findings Empirical data obtained from 277 auditors were analysed using descriptive statistics, factor analysis, one-way ANOVA, cluster analysis, independent sample t-test and one-way multivariate analysis of co-variance. It was observed that the two highest-ranking and most-prevalent challenges of auditing fair value measurement and accounting estimates are the tendency for managers to manipulate earnings owing to the inability of auditor to effectively test fair value estimates; and the difficulty in testing unobservable inputs due to the application of assumptions and judgement in arriving at estimates by preparers of financial reports. Originality/value While there is no significant difference in the perception of auditors on the audit challenges associated with fair value measurement and accounting estimates, there is a significant difference in the magnitude of audit challenges faced in verifying fair value measurements and accounting estimates across industry sectors. Concerned stakeholders (including but not limited to accounting regulators, auditing standard setters, audit firms, researchers) are importuned to come up with robust and pragmatic measures to curtain these challenges, as the inability of auditors to rigorously verify fair value estimates may jeopardize the very essence of fair value measurement which is to elevate financial reporting quality.

Content and context: “fair” values in China

2017 ◽  
Vol 30 (2) ◽  
pp. 352-377 ◽  
Author(s):  
Ferdinand Balfoort ◽  
Rachel Francis Baskerville ◽  
Rolf Uwe Fülbier
Keyword(s):  
Financial Reporting ◽  
Fair Value ◽  
Governance Structure ◽  
Future Research ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Fair Value Measurement ◽  
Western Market ◽  
Value Measurement ◽  
The Impact

Purpose The evolution of International Financial Reporting Standards (IFRS) was nurtured by economists and accountants loyal to the philosophical basis of what is often referred to as “Western” market economies, being classical and neoclassical contracting theories. The purpose of this paper is to illustrate how a particular Asian cultural attribute (guānxì ) impacts on the efficacy of fair value measurement. Design/methodology/approach Using a literature review and research of studies of the adoption of IFRS in China, studies of both guānxì and fair value in Chinese accounting research, this study unbundles Williamson’s governance structure and contracting theory to examine how guānxì is positioned orthogonally to fair value (market-oriented valuation) principles for financial reporting. This is followed by a case study of the events surrounding the collapse of China Medical Technologies. Findings Guānxì is integral to Asian economies and economic transactions. Resulting conditions, characterised by relational contracting, may not meet the qualitative characteristics of neutrality and faithful representation in fair value measurement of assets and liabilities. The same may be true when insider or “trusted party transaction” values prevail for large ticket transactions among entities in any jurisdiction. Research limitations/implications Future research on the impact of guānxì may be constrained by its often hidden, and yet dynamic, character; and the varieties of its manifestations. Originality/value This study highlights how difficult it may be to achieve both comparability and relevance in the asset and liability recognition and measurement rules in Asian (and possibly also other) economies adopting accounting principles that are developed in a Western context.

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