Harmonization, Comparability, and Fair Value Accounting

In this paper, we focus on the relationships between international accounting harmonization (IAH) and the paradigm of Fair Value Accounting (FVA). Accountants rely on the accounting concept of comparability in defining IAH and are in agreement that a set of internationally implemented Generally Accepted Accounting Principles (GAAP) is required for a “complete harmonization.” We argue, however, that a second requirement—a common denominator for measuring, recording, and reporting business transactions, assets, liabilities, and equities—is necessary to reach a state of a “complete IAH.” We explain the logic behind the requirement of a common denominator and assert that IAH is feasible under the paradigm of FVA, but not under that of Historical Cost Accounting (HCA). This is true because the concept of fair value, but not historical cost, provides the common denominator necessary for a meaningful comparison of accounting data. We then argue that the paradigm of FVA acts as a catalyst in a harmonization cycle: FVA propels IAH and IAH provides more relevant information that may foster the efficiency of global markets, which improves the quality of the FVA figures.

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La percezione della qualitŕ dei prodotti tipici da parte del consumatore in Sicilia

ECONOMIA AGRO-ALIMENTARE ◽

10.3280/ecag2012-001007 ◽

2012 ◽

pp. 143-172

Author(s):

Gaetano Chinnici ◽

Biagio Pecorino ◽

Alessandro Scuderi

Keyword(s):

Information Needs ◽

Dietary Habits ◽

National Level ◽

Relevant Information ◽

Purchasing Decisions ◽

Farm Produce ◽

The Common ◽

Components Analysis ◽

Increasing Demand

The common agricultural policy over the years has expanded the tools of promotion and protection of farm produce quality. At the national level but also from Europe we are witnessing a change in consumer behavior: they become more and more relevant information needs, safety and food security, increasing demand for quality products and the willingness to pay for those products that meet consumer expectations. The paper focuses on the perceived quality of local products in order to identify those variables that influence purchasing decisions and dietary habits and consumer group. The survey was conducted using a principal components analysis to summarize the information that characterizes the choices of consumption, followed by cluster analysis which allowed us to confirm the presence of different segments of consumers of local products.

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The Critical Aspect on Fair Value Accounting And Its Implication To Islamic Financial Institutions.

Al-Iqtishad Journal of Islamic Economics ◽

10.15408/aiq.v6i2.1236 ◽

2014 ◽

Vol 6 (2) ◽

pp. 283-304

Author(s):

Jamaluddin Majid ◽

Safri Haliding

Keyword(s):

Financial Institutions ◽

Accounting Standards ◽

Fair Value ◽

Critical Aspect ◽

Fair Value Accounting ◽

Historical Cost ◽

Accounting Measurement ◽

Islamic Financial Institutions ◽

Value Measurement ◽

Critical Aspects

The Critical Aspect on Fair Value Accounting And Its Implication To Islamic Financial Institutions. Fair value accounting (FVA) paradigm replaced the historical cost accounting (HCA) in the development of accounting standards that FVA is more relevant that HCA probably did not provide the real financial and income information. This paper tries to explore critical aspects of the fair value accounting and its implications to Islamic Financial Institutions implications. This study concludes that that fair value accounting measurement provides many critical aspects to be implemented to Islamic Financial Institutions (IFIs). AAOIFI proposed cash equivalent value as respond to fair value measurement that cash equivalent value when the attribute condition are present such as the relevance, reliability and understandability of the resulting information DOI:10.15408/aiq.v6i2.1236

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An Analysis Of Factors Impacting The Value-Relevance Of SFAS No. 107 Fair Value Disclosures

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i4.2995 ◽

2011 ◽

Vol 1 (4) ◽

Author(s):

Daniel R. Brickner

Keyword(s):

Value Relevance ◽

Fair Value ◽

Relative Magnitude ◽

Financial Statement ◽

Font Size ◽

Historical Cost ◽

Financial Condition ◽

The Difference

This study examines the impact of hypothesized factors on the value-relevance of SFAS No. 107 fair value disclosures.  These factors include firm size, the relative magnitude of the difference between the fair value and the historical cost measurements for each financial instrument, firm financial condition, and the quality of a firm’s financial statement audit.  A pooled valuation model is employed on the sample of 867 firm years for banks and bank holding companies during the period of 1996 and 1997.   The results indicate that the SFAS No. 107 fair value disclosures for investment securities, net loans, and long-term debt are value-relevant in explaining the market value of common equity for the sample banks.  With respect to the hypothesized factors, firm size was found to have a statistically significant impact on the value-relevance of the disclosures for net loans and long-term debt.  Additionally, the relative magnitude of the difference between the fair value and historical cost had a statistically significant effect on the value-relevance of the disclosure for investment securities and long-term debt.  Finally, firm financial condition and the quality of a firm’s audit were found to have a statistically significant impact on the fair value disclosure for net loans.  The results of this study are descriptive of the behavior of financial statement users with respect to these fair value disclosures.  The implications of this study’s findings are useful for both accounting standard-setters and preparers of financial statements.  Taken together, these findings suggest that the market does not respond to the SFAS No. 107 fair value disclosures at their face value alone or without considering their context.  Specifically, it appears to look to other factors that may impact the relevance and/or reliability of these disclosures.

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

Corporate Ownership and Control ◽

10.22495/cocv16i2art1 ◽

2019 ◽

Vol 16 (2) ◽

pp. 8-18 ◽

Cited By ~ 3

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.

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THE APPLICATION OF FAIR VALUE ACCOUNTING IN BOSNIA AND HERZEGOVINA

ACTA ECONOMICA ◽

10.7251/ace1931149p ◽

2019 ◽

Vol 17 (31) ◽

Author(s):

Amira Pobrić

Keyword(s):

Earnings Management ◽

Bosnia And Herzegovina ◽

Fair Value ◽

Financial Statement ◽

Fair Value Accounting ◽

Fair Value Measurement ◽

Value Measurement ◽

Level 2 ◽

Infor Mation

This study investigates the application of fair value ac- counting in companies in Bosnia and Herzegovina. The study was conducted on a sample of 190 companies. The application of fair value accounting causes a lot of controversy related to the relevance and reliability of fair value information. It is believed that the extent to which fair value measurement is used reflects attitudes of financial statement preparers about the usefulness of this model at its best. The findings of this study sug- gest that most companies in Bosnia and Herzegovina do not have tendency to apply fair value accounting. It is found that half of the companies in the sample do not use fair value accounting at all. Almost half of the com- panies that use fair value accounting use it just because they own assets that require fair value measurement. Fair value accounting is much more used in financial and larger companies than in non-financial and smaller companies. Companies mostly use fair value accounting for the measurement of investment property. However, they use it for the measurement of intangible assets at a minimum. The findings also suggest that the application of fair value accounting increases the uncertainty in fi- nancial statements. The quality of fair value disclosures is very low. Numerous companies do not disclose infor- mation on fair value hierarchy and valuation techniques that were used for fair value measurement. Companies that disclose this information mostly use indirectly ob- servable inputs (Level 2) for fair value measurement and these create a lot of room for earnings management.

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Conceptual framework and measurement: A survey on the international debate

Corporate Ownership and Control ◽

10.22495/cocv12i4p2 ◽

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.

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The role of using fair value on relevance and representation faithfulness of accounting information in accordance with the Common Conceptual Framework (FASB-IASB)

Restaurant Business ◽

10.26643/rb.v118i12.13092 ◽

2019 ◽

Vol 118 (12) ◽

pp. 142-165

Author(s):

Dr. Nada Kaki Bira ◽

Layla Naji Majeed Al Fatlawi

Keyword(s):

Conceptual Framework ◽

Accounting Information ◽

Fair Value ◽

Fair Value Accounting ◽

Global Trend ◽

The Common ◽

Relationship Of ◽

The Impact ◽

The Relationship

The global trend towards the use of fair value accounting is increasing, so the current study aimed to maximize the impact of fair value application on achieving relevance and representation faithfulness of accounting information in accordance with the common conceptual framework. To achieve the objective of this study, the researcher has determined in the theoretical framework the relationship of fair value with the characteristics of relevance and representation faithfulness of accounting information and the extent of achieving these characteristics, as well as conducting a field study by preparing a questionnaire distributed to a sample of academics (50) and auditors (50) with a total number of selected participants (100) of academics and auditors.

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The Possibility of Applying Fair Value According to IFRS 13 to Achieve Tax Justice in Determining Taxable Income in Iraq: An Applied Study

Studies of Applied Economics ◽

10.25115/eea.v39i11.5908 ◽

2021 ◽

Vol 39 (11) ◽

Author(s):

Emad Ghafoori Abood Al-Najjar

Keyword(s):

Income Tax ◽

Balance Sheet ◽

Fair Value ◽

Tax Law ◽

Fair Value Accounting ◽

Taxable Income ◽

Historical Cost ◽

Accounting Measurement ◽

Applied Study ◽

Income Tax Law

The research aims to determine the importance of adopting the General Tax Authority in Iraq fair value accounting in determining taxable income by highlighting the failure to apply the historical cost that leads to misleading the users of the financial statements because of the unrealistic and inappropriate information they contain, as well as explaining the role of applying fair value in achieving The basic qualitative characteristics of accounting information in a manner that leads to determining taxable income more closely to justice after being amended according to the applicable income tax law. And analyzing the company's reports so that income is measured according to the fair value on the basis of the IFRS 13, which is subsequently modified according to the applicable income tax law to reach the measurement of taxable income in Iraq as well as the preparation of the Balance sheet In light of this, this measurement is generalized to all Contracting companies listed in the market. The researcher reached a set of conclusions, the most important of which is that the use of fair value accounting in accordance with the IFRS 13 in the contracting sector contributes to providing consistency in accounting measurement and disclosure practices, providing relevance and faithful representation information that is the basis for achieving fairness in tax accounting and recommendations.

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Fair value in financial statements after financial crisis

Journal of Applied Accounting Research ◽

10.1108/jaar-07-2014-0069 ◽

2015 ◽

Vol 16 (3) ◽

pp. 312-332 ◽

Cited By ~ 2

Author(s):

Daniela Majercakova ◽

Miroslav Skoda

Keyword(s):

Fair Value ◽

Theoretical Background ◽

Research Approach ◽

Fair Value Accounting ◽

Current Crisis ◽

Group Discussions ◽

Content Type ◽

Historical Cost ◽

Advantages And Disadvantages ◽

The Cost

Purpose – The purpose of this paper is to examine and depict the advantages and disadvantages connected to the fair value, providing the reader with objective information and thorough insight into the problems and benefits of fair value. Partial objectives of this paper are to define the concept of fair value, to provide information about theoretical background and evolution of fair value and to examine and describe the possible future development of fair value. Design/methodology/approach – Findings in the paper are based on study of existing literature and also on study using the open-ended approach of grounded theory, including 50 interviews and two group discussions with professional accountants dealing with the fair value accounting in practice. Findings – According to the advantages and disadvantages of the concept of fair value in accounting, it is quite obvious and clear that this concept is far from being perfect. It is very difficult to determine whether its contribution to the improvement of accounting is really beneficial. Although the fair-value discussion seems to be far from over now, the current crisis provided an interesting setting to further explore these issues, understand them better and hopefully urge responsible institutions to fix the imperfections within the system to make it work correctly and more effectively. Research limitations/implications – Because of the chosen research approach, the research results may lack generalisability. Therefore, researchers are encouraged to test the proposed propositions further. Practical implications – This paper highlights that historical cost and fair value accounting must not be considered as competitors, as they serve different purposes. Knowledge of fair value is important, although it is not enough. Users also need to know the cost of the investment. In fact, knowing how much resources have been sacrificed to obtain that fair value, they could effectively evaluate stewardship. As a consequence, the adoption of a dual measurement and reporting system should be considered and discussed at a standard setting level. Originality/value – This paper fulfils an identified need to study how fair value accounting can be useful in the future.

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Fair Value Accounting for Property-Liability Insurers and Classification Decisions under FAS 115

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x9801300303 ◽

1998 ◽

Vol 13 (3) ◽

pp. 207-239 ◽

Cited By ~ 19

Author(s):

Norman Godwin ◽

Kathy Petroni ◽

James Wahlen

Keyword(s):

Liquidity Risk ◽

Accounting Standards ◽

Fair Value ◽

Financial Accounting ◽

The Other ◽

Fair Value Accounting ◽

Historical Cost ◽

Accounting Numbers ◽

Sample Property ◽

Important Objective

The first objective of this study is to describe the substantial differences across property-liability insurers in accounting classification decisions for fixed maturity securities during 1991–1995. This period includes the years before adoption, upon initial adoption, and after adoption of Statement of Financial Accounting Standards No. 115 (FAS 115, “Accounting for Certain Investments in Debt and Equity Securities”). The second and more important objective of this study is to test two risk-based explanations for differences in investment classification decisions under FAS 115. Under this new standard, firms are required to classify fixed maturity investment securities into trading portfolios, available-for-sale portfolios, or held-to-maturity portfolios. These classification decisions determine whether these securities are recognized at fair value or historical cost. On one hand, the decision to classify securities as available-for-sale rather than held-to-maturity (and thus apply fair value accounting) increases the time-series volatility of key accounting numbers such as owners' equity and total assets, which may be costly for insurers with low tolerance for accounting volatility. On the other hand, the choice to classify securities as available-for-sale (and thus apply fair value accounting) reduces liquidity risk because the accounting standards (and SEC enforcement practices) limit management's ability to sell securities that are not recognized at fair value. The empirical analyses examine whether the security classification decisions of the sample property-liability insurers are associated with firm specific characteristics that reflect liquidity risk and the tolerance for accounting volatility. The findings show that managers of property-liability insurers make tradeoffs between liquidity risk and concerns about accounting volatility when making investment classification decisions under FAS 115.

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