A Model for Implementation of Fair Value Accounting in Corporate Financial 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.

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

Journal of Accounting & Organizational Change ◽

10.1108/jaoc-03-2018-0032 ◽

2019 ◽

Vol 15 (2) ◽

pp. 170-197 ◽

Cited By ~ 1

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.

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Fair value accounting choice

Journal of European Real Estate Research ◽

10.1108/jerer-09-2014-0032 ◽

2015 ◽

Vol 8 (2) ◽

pp. 130-152 ◽

Cited By ~ 2

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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An Evaluation Of The Implementation Of Fair Value Accounting: Impact On Financial Reporting

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i1.934 ◽

2011 ◽

Vol 9 (1) ◽

Author(s):

Karen T. Cascini ◽

Alan DelFavero

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Fair Value ◽

The United States ◽

Financial Accounting ◽

Financial Assets ◽

Financial Accounting Standards Board ◽

Continuous Change ◽

Fair Value Accounting ◽

The Cost

The accounting industry is in a state of continuous change.  In the United States, the historical cost principle has traditionally been the foundation of accounting.  Until recently, assets and liabilities have been required to be recorded at their acquisition prices, with the exception of designated financial assets and financial liabilities.  However, the Financial Accounting Standards Board (FASB) has now created accounting standards that are distant from the cost principle.  Statement of Financial Accounting Standards No. 157: Fair Value Measurements, issued in September 2006 (FAS157, now codified as ASC 820) and Statement of Financial Accounting Standards No. 159: The Fair Value Option for Financial Assets and Financial Liabilities, created in February 2007 (FAS159, now ASC 825-10-25), significantly increases the viability of fair value accounting. The purpose of this paper is to illustrate the benefits and pitfalls of fair value and the corresponding affects on various stakeholders.

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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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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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Fair value accounting implementation challenges in South Africa

Journal of Accounting in Emerging Economies ◽

10.1108/jaee-01-2020-0013 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Anuradha Pandya ◽

Wayne van Zijl ◽

Warren Maroun

Keyword(s):

South Africa ◽

South African ◽

Financial Reporting ◽

Accounting Standards ◽

Fair Value ◽

Perceived Usefulness ◽

Developing Economy ◽

Fair Value Accounting ◽

Extensive Experience ◽

Content Type

PurposeThe objective of this research is to explore the challenges being encountered when applying and implementing fair value accounting requirements, focusing specifically on the determination of fair value per International Financial Reporting Standards (IFRS) 13: Fair value measurement (IFRS 13) in the South African capital market.Design/methodology/approachData are collected from 20 detailed interviews, primarily with preparers and interpretively analysed to identify how individuals internalise the requirements of IFRS 13 and the challenges associated with its application. The researchers focus specifically on South Africa because of its status as a developing economy and, at the same time, its extensive experience in applying IFRS.FindingsSouth African preparers appear reluctant to change from a conventional cost-based measurement approach to one grounded in fair value. Primary concerns include the perceived usefulness of fair value accounting and its conceptual appropriateness, given its perceived de-emphasis of the traditional stewardship role of financial reporting. Related challenges to the application of IFRS 13 include concerns about the cost of determining fair value; the inherent subjectivity of fair value measures and the practical difficulty of calculating fair values when markets are not efficient or where business environments are complex and dynamic where Level 1 inputs are not widely available for all assets and liabilities. These challenges encourage preparers to choose accounting policies, which minimise the use of fair value or apply the provisions of IFRS 13 legalistically.Research limitations/implicationsData are collected from a group of respondents from a single developing economy. Additional research on the application of IFRS 13 in other developing markets will be required to conclude on the relevance of economic, cultural and social factors for the understanding and implementation of new accounting standards by practitioners.Practical implicationsStandard setters and regulators cannot assume that new accounting standards will be interpreted and applied as intended. Even when compliance with IFRS is mandatory, preparers have considerable discretion when it comes to operationalising accounting prescriptions. Unless the challenges raised by preparers are addressed, misapplication of IFRS is likely to continue.Originality/valueThe research makes an important empirical and practical contribution by providing primary evidence on the operationalisation of IFRS 13 in a novel setting. It complements earlier research which has focused primarily on the conceptual/theoretical dimension and on American and European perspectives.

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Commentary on Auditing High-Uncertainty Fair Value Estimates

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-10172 ◽

2012 ◽

Vol 31 (1) ◽

pp. 147-155 ◽

Cited By ~ 64

Author(s):

Timothy B. Bell ◽

Jeremy B. Griffin

Keyword(s):

Measurement Uncertainty ◽

Financial Reporting ◽

Fair Value ◽

Estimation Accuracy ◽

Fair Value Accounting ◽

Audit Process ◽

Reporting Environment ◽

High Uncertainty ◽

Jel Classifications

SUMMARY: This commentary addresses challenges faced by standard-setters, preparers, users, and auditors pertaining to high-uncertainty fair value estimates. We briefly describe the financial reporting environment and the difficulty of obtaining reasonable assurance for fair value estimates with high levels of inherent measurement uncertainty. We then discuss some characteristics of an effective accountability framework for fair value accounting. We propose that additional disclosures of management's historical estimation accuracy and current levels of inherent measurement uncertainty, accompanied by changes in the audit process and auditors' communications to users, offer the most practical means to address concerns about the transparency and verifiability of high-uncertainty fair value estimates. JEL Classifications: M42; M48.

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Fair value accounting and management opportunism on earnings management in banking sector: First evidence

Corporate Ownership and Control ◽

10.22495/cocv15i2art5 ◽

2018 ◽

Vol 15 ◽

pp. 59-69 ◽

Cited By ~ 4

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.

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Herclassificatie van financiële activa

Maandblad Voor Accountancy en Bedrijfseconomie ◽

10.5117/mab.84.15759 ◽

2010 ◽

Vol 84 (3) ◽

pp. 133-142 ◽

Cited By ~ 1

Author(s):

Bert-Jan Bout ◽

Ralph Ter Hoeven

Keyword(s):

Financial Reporting ◽

Fair Value ◽

Fair Value Accounting ◽

Reporting Standard ◽

International Financial Reporting Standard ◽

Ias 39 ◽

Mate Waarin

Onder invloed van de kredietcrisis en na politieke druk vanuit de Europese Unie heeft de IASB in oktober 2008 en binnen zeer korte tijd een amendement doorgevoerd op de International Financial Reporting Standard (IFRS) over financiële instrumenten (IAS 39). Dit amendement maakt het onder voorwaarden mogelijk om door middel van een herclassificatie van financiële activa van fair-value-accounting naar kostprijsaccounting over te gaan. In dit artikel zullen de achtergrond en de inhoud van deze veranderingen worden besproken en geëvalueerd. Tevens worden de resultaten gepresenteerd van een empirisch onderzoek onder Europese financiële instellingen naar de mate waarin van deze herclassificatiemogelijkheid gebruik is gemaakt.

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