Revised Model for Presentation in Statement(s) of Financial Performance: Potential Implications for Measurement in the Conceptual Framework

2016 ◽  
Vol 30 (4) ◽  
pp. 485-498 ◽  
Author(s):  
Thomas J. Linsmeier
Keyword(s):  
Financial Performance ◽  
Relevant Information ◽  
Fair Value ◽  
Measurement Model ◽  
Financial Assets ◽  
Historical Cost ◽  
Performance Reporting ◽  
Other Comprehensive Income ◽  
Potential Basis ◽  
Value Measurement

SYNOPSIS: Current financial performance reporting has led to a focus on earnings per share and a proliferation of both non-GAAP measures and items reported in other comprehensive income. I examine characteristics of some of the more common non-GAAP earnings adjustments to propose a financial performance reporting model that consistently presents information with those characteristics separately. This reporting model focuses on distinguishing operating results from nonoperating results and within those categories presenting recurring amounts separately from nonrecurring amounts. I next explore potential implications for measurement. This analysis identifies conditions when the recognition of incremental unrealized gains or losses (UGLs) in income under a fair value measurement model improves relevance of reported information. The analysis suggests that UGLs provide most relevant information when there are no internal or external constraints affecting management's ability to sell an asset or transfer a liability before maturity or the end of its useful life. When assets/liabilities are constrained from being sold/transferred before maturity or the end of their useful lives, reported UGLs will reverse to zero over time, limiting relevance. This analysis supports measurement of financial assets and investment properties at fair value and provides a potential basis for measuring other assets and liabilities at historical cost.

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.

Harmonization, Comparability, and Fair Value Accounting

2007 ◽  
Vol 22 (3) ◽  
pp. 493-509 ◽  
Author(s):  
Benzion Barlev ◽  
Joshua Rene Haddad
Keyword(s):  
Relevant Information ◽  
Fair Value ◽  
Global Markets ◽  
Common Denominator ◽  
Fair Value Accounting ◽  
Accounting Data ◽  
Generally Accepted Accounting Principles ◽  
Historical Cost ◽  
The Common

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.

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 UNDERSTANDING BIG DATA-FAIR VALUE MEASUREMENT MODEL OF BIOLOGICAL ASSETS

2021 ◽  
Vol 6 (24) ◽  
pp. 01-08
Author(s):  
Nurshahirah Salehuddin ◽  
Suraiya Ibrahim ◽  
Wan Salha Yusoff
Keyword(s):  
Big Data ◽  
Agricultural Sector ◽  
Fair Value ◽  
Measurement Model ◽  
Biological Properties ◽  
Agriculture Sector ◽  
Daunting Task ◽  
Fair Value Measurement ◽  
The Cost ◽  
Value Measurement

This research establishes a Big Data-Fair Value Measurement Model of Biological Assets using a Smart Farming Approach. The aim of the study is to gather literature knowledge about the judgment of biological assets. The use of big data and innovative farming in the agricultural sector is relatively new in Malaysia, making people wonder about its effectiveness, whether positive or negative. However, determining fair value can be a daunting task due to the existence of personal biological properties and the variety of specimens (offspring), classes, and conditions. Agricultural sectors need to be more emphasised by many parties as the increases in cost production is not a trivial matter that can be ignored. There have been pressures from foreign countries such as Thailand, Vietnam, and Indonesia in the agricultural sector. Malaysia faces one major challenge: the cost of production, including wages and inputs, is relatively higher. (Rozhan 2019). Agricultural accounting is a minor standard, but it has a broad scope and a significant impact on agricultural businesses based on the accounting perspective, the MFRS141/IAS 41. The standard improves the transparency of the cost to replace capital (by allowing for depreciation and amortisation) and better reflects the productive lifespan of assets in agricultural operations. However, the application of MFRS 141 Agriculture is still relatively new in Malaysia, and a thorough examination of the literature indicates several gaps and deficiencies. This literature review is vital to support the study on Big Data-Fair Value Measurement Model of Biological Assets as the agricultural sector's involvement was recently popular. It might also offer some good ideas for handling problems involving the fair value measurement. Future studies will help the Ministry of Agriculture and Food Industries, agriculture sector workers, in terms of practical perspective. Therefore, the future result of the study suggests an improvement within the agriculture sector related to the treatment in their fair values, issues, and strategies.

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

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

scholarly journals The Foundations for a General Theory of General Purpose Financial Reporting for Business

2021 ◽  
Author(s):  
◽  
David Sutton
Keyword(s):  
General Theory ◽  
Financial Reporting ◽  
Central Element ◽  
Accounting Standards ◽  
Fair Value ◽  
General Purpose ◽  
Historical Cost ◽  
Legitimate User ◽  
Valuation Method ◽  
Value Measurement

<p>Accounting standards setters have progressively moved towards decision-useful, investor-focused fair value accounting standards for general purpose financial reporting (GPFR). With some qualification, the case is made that this development is positive for accounting as a discipline. This paper develops a referent theory of accounting to contextualize standards setters' implicit direction, derived from existing research and literature. A central element in the development of this theory is the case made for 'investor-as-GPFR user'. Against this, stakeholder theory and positive accounting theory will be identified as confounding influences on the development of a general theory of accounting. The argument is for the investor, both current and potential, as the sole legitimate user of GPFR. The practical implications of the theory are considered against the prevailing debate over optimal accounting valuation method; the debate between fair value measurement and historical cost. The case is made that a number of ostensible dichotomies in accounting thought, such as between relevance and accountability, are substantially reconcilable. The mutual exclusivity often implied of accounting information relevance and accountability-cum-reliability is rejected. The development of a general theory of accounting is timely as such a referent theory is necessary to legitimize standards setting and secure accounting's place in an increasingly diverse financial information market. Inferentially, trends in the evolution of fair value standards reflect the dominant concern to meet threats to the discipline as a whole; this standard setting trend qualified in speed and degree by the narrow interests of 'constituents'.</p>

scholarly journals The relationship between the financial crisis and the measurement of fair value in financial statements

2014 ◽  
pp. 43-51
Author(s):  
Birutė Gudonytė ◽  
Kristina Rudžionienė
Keyword(s):  
Financial Crisis ◽  
Information Disclosure ◽  
Global Financial Crisis ◽  
Relevant Information ◽  
Fair Value ◽  
Financial Reports ◽  
Value Evaluation ◽  
True Value ◽  
The Global Financial Crisis ◽  
Value Measurement

Literature suggests that the main goal of fair value evaluation is more reliable and relevant information disclosure to external users. However, in 2007, at the beginning of the global financial crisis, the benefits of fair value, as well as the opportunity to provide information about the true and fair view of a company, were called into question. Opponents of the fair value claim that the fair value was the main reason for the global financial crisis, but the advocates disagree; therefore, the correlation between the fair value and crisis is controversial. It reflects the problem of the thesis: how the system of fair value accounting influenced the financial crisis? Object of the paper: the method of true value measurement. Aim of the paper: to evaluate the measurement of fair value and its potential impact on the financial crisis in Lithuania. After analysing the evaluation of 25 Lithuanian listed companies by disclosure of fair value, it can be state that stock companies evaluate more property than liabilities by disclose the fair value. A correlation coefficient was determined while assessing the correlation between the application of fair value in financial reports and financial crisis in Lithuania, but it disapproved the correlation.

The Usefulness of Accounting Information Resulting from Standard-Setting Compromises: The Pension Accounting Case

2019 ◽  
Vol 33 (4) ◽  
pp. 145-165
Author(s):  
Marc Cussatt ◽  
Troy J. Pollard ◽  
Mary S. Stone
Keyword(s):  
Value Relevance ◽  
Predictive Ability ◽  
Fair Value ◽  
Pension Plans ◽  
Income Smoothing ◽  
Defined Benefit ◽  
Current Period ◽  
Other Comprehensive Income ◽  
Accounting Model ◽  
Value Measurement

SYNOPSIS Most U.S. employers sponsoring defined benefit pension plans use an accounting model that balances managers' preference for income smoothing with the FASB's belief in fair value measurement. This model, which we refer to as the deferral/reclassification model, requires current period gains/losses and costs of plan amendments to be closed to accumulated other comprehensive income (AOCI) and reclassified to earnings in subsequent periods (RECLASS). The usefulness of information produced by this model is questioned, especially RECLASS adjustments, which affect earnings in periods subsequent to the economic events that engendered them. This study examines the usefulness of information produced by the deferral/reclassification model. We find that AOCI and RECLASS amounts demonstrate predictive ability and exhibit value relevance. Additional analyses compare the usefulness of information produced by the deferral/reclassification and fair value models. Our results suggest that although the deferral/reclassification model is not conceptually defensible, the information it produces appears to be useful. JEL Classifications: M40; M41.

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