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.

scholarly journals Dampak Implementasi International Financial Reporting Standard Pada Penyajian Other Comprehensive Income Perusahaan Perdagangan, Jasa, dan Investasi di Indonesia

2018 ◽  
Vol 5 (01) ◽  
pp. 14-25
Author(s):  
Denny Rianto ◽  
Nurmala Ahmar
Keyword(s):  
Financial Reporting ◽  
Joint Venture ◽  
Foreign Currency ◽  
Fair Value ◽  
Future Research ◽  
Defined Benefit ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Comprehensive Income ◽  
Other Comprehensive Income

ABSTRACT The purpose of this study is to analyze the presentation of other comprehensive income and its components in the trade, service and investment industries after the implementation of the International Financial Reporting Standard in Indonesia. The sample is the trade, service and investment industry sectors listed in Indonesia Stock Exchange 2012-2015. Other Comprehensive Income (OCI) shall be presented separately in the statements of income since 2013 and re-review for 2012 on the reporting of the relevant year. The components presented include asset revaluation, translation of foreign currency financial statements to reporting currency, actuarial changes in defined benefit obligations, changes in fair value in available-for-sale investments, fair value changes to current, joint and joint venture hedges. The result of the research shows that there is difference of presentation value of other comprehensive comprehensive component. Future research can examine the antecedents and consequent accounts of OCI components in public companies in Indonesia. ABSTRAK Tujuan penelitian ini adalah menganalisis penyajian other comprehensive income dan komponennya pada industri perdagangan, jasa, dan investasi pasca penerapan International Financial Reporting Standard di Indonesia. Sampel adalah sektor industri perdagangan, jasa, dan investasi yang terdaftar di Bursa Efek Indonesia tahun 2012-2015. Other Comprehensive Income (OCI) wajib disajikan secara terpisah pada laporan laba rugi sejak tahun 2013 dan saji ulang untuk tahun 2012 pada pelaporan tahun yang besangkutan. Komponen yang disajikan mencakup revaluasi aset, penjabaran laporan keuangan mata uang asing ke mata uang pelaporan, perubahan aktuarial dalam imbalan kerja manfaat pasti, perubahan nilai wajar dalam investasi yang tersedia untuk dijual, perubahan nilai wajar terhadap lindung nilai arus, asosiasi dan ventura bersama. Hasil penelitian menunjukkan terdapat perbedaan nilai penyajian komponen other comprehensive income. Riset mendatang dapat meneliti anteseden dan konsekuen akun komponen OCI pada perusahaan public di Indonesia. JEL Classification: M41, M48

scholarly journals The impact of legal efficacy on value relevance of the three-level fair value measurement hierarchy

2020 ◽  
Vol 59 ◽  
pp. 101259 ◽  
Author(s):  
Lin Liao ◽  
Daifei (Troy) Yao ◽  
Helen Kang ◽  
Richard D. Morris
Keyword(s):  
Value Relevance ◽  
Fair Value ◽  
Fair Value Measurement ◽  
Value Measurement ◽  
The Impact

Value Relevance Change Under International Accounting Standards: An Empirical Study of Peru

2012 ◽  
Vol 15 (02) ◽  
pp. 1150008 ◽  
Author(s):  
Chunhui Liu ◽  
Lee J. Yao ◽  
Michelle Y. M. Yao
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Accounting Standards ◽  
Fair Value ◽  
Securities And Exchange Commission ◽  
International Accounting ◽  
International Accounting Standards ◽  
Recent Period ◽  
Financial Reporting Standards ◽  
Value Measurement

In face of broad adoption of International Financial Reporting Standards (IFRS), the Securities and Exchange Commission (SEC) is considering its quality and acceptability. This paper reports a study that examines changes in value relevance with a sample of Peru firms mandated to use international accounting standards between 1999 and 2007. The period under study is broken into a period of International Accounting Standards (IAS) between 1999 and 2001, a period of early IFRS between 2002 and 2004, and a more recent period of IFRS between 2005 and 2007 by major changes to accounting standards. The empirical results generally indicate that value relevance improved from the IAS period to the early IFRS period when the International Accounting Standards Board (IASB) took over the International Accounting Standards Committee (IASC), but worsened from the early IFRS period to the recent IFRS period when more accounting standards started to reflect IASB's preference for fair value measurement of assets and liabilities. Quality weakens to a greater extent for firms with more discretion for fair value estimates. Further analysis shows that such changes are less likely to result from changes in economic conditions, but from the changes of the standards. The findings are particularly alarming in face of rising IFRS adoptions and call for quality improvement to IFRS.

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.

Opinions Of Financial Analysts On Accounting For defined Benefit Pension Plans

2011 ◽  
Vol 11 (3) ◽  
pp. 65 ◽  
Author(s):  
Kenneth E. Stone ◽  
David W. Joy ◽  
Cynthia J. Thomas
Keyword(s):  
Balance Sheet ◽  
Financial Analysts ◽  
Pension Plan ◽  
Fair Value ◽  
Pension Plans ◽  
Defined Benefit ◽  
Service Cost ◽  
Prior Service ◽  
Gains And Losses ◽  
Defined Benefit Pension Plans

Responding financial analysts preferred pension plan accounting which contrasts with requirements of SFAS No. 87. The preferred model included: (1) Plan assets and accumulated benefit obligations are on the balance sheet. (2) Prior service cost is recognized in the year of plan adoption or amendment. (3) Gains and losses are recognized when they occur. (4) Annual pension expense is computer by netting the change in fair value of plan assets, deposits to the pension plan, and the change in accumulated benefit obligations.

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.

scholarly journals The Value and Risk Relevance of Fair Value: The Case of French Firms

2016 ◽  
Vol 6 (2) ◽  
pp. 15
Author(s):  
Mondher Kouki ◽  
Mosbeh Hsini ◽  
Farah Tabassi
Keyword(s):  
Value Relevance ◽  
Fair Value ◽  
Net Income ◽  
Financial Instruments ◽  
Historical Cost ◽  
Comprehensive Income ◽  
Empirical Tests ◽  
Income Measurement ◽  
Value Changes ◽  
Value Measurement

We study the performance of fair value accounting standards of financial instruments starting from the analysis of quality relevance of accounting information. In particular, we are interested in the value relevance and risk relevance of income that contains financial instruments measured or not at fair value. To do so, we compare three income levels known as accounting standard’s history. The three major levels are Full-Fair-Value income measurement (all-fair-value changes recognized in income), piecemeal-fair-value income measurement or comprehensive income (some fair-value changes recognized in income), and historical-cost income measurement or net income (no fair-value measurement existing). The empirical tests of value relevance showed that net income is not a relevant value, and Full Fair Value Income is more significant than the Comprehensive Income. The study shows also that risk relevance is more, measured by the volatility of Full Fair Value Income.

scholarly journals Do fair value measurements affect accounting-based earnings quality? A literature review with a focus on corporate governance as moderator

2021 ◽  
Author(s):  
Johannes Thesing ◽  
Patrick Velte
Keyword(s):  
Corporate Governance ◽  
Literature Review ◽  
Value Relevance ◽  
Earnings Quality ◽  
Predictive Ability ◽  
Quality Measures ◽  
Fair Value ◽  
Future Research ◽  
Earnings Persistence ◽  
Fair Value Measurements

AbstractThis structured literature review of 48 archival-based studies investigates the influence of fair value measurements on earnings quality and stresses the moderating impact of corporate governance. We focus on accounting-based earnings quality measures that have several advantages for investigating agency-related earnings management behavior compared to market-based measures (e.g. value relevance studies). Fair value measurements are not restricted to specific industries, periods, circumstances, or items in our sample. Based on the applied earnings quality measure, the reviewed articles are structured into five categories: (1) earnings persistence and predictive ability, (2) discretionary accruals, (3) target beating and properties of analysts’ forecasts, (4) earnings variability, and (5) other earnings quality measures. We indicate three key findings: first, fair value measurements show mixed earnings quality; second, lower-level fair value measurements decrease earnings quality; and third, corporate governance measures enhance earnings quality. After that, we deduce six research questions for future research. We show possible extensions to previous research designs in methodology and settings. Future research should also focus on corporate governance variables to a greater extent, especially compensation and board structures. Thereby, we suggest extending the neoclassical view with behavioral aspects.

scholarly journals THE VALUE RELEVANCE OF INTERNATIONAL ACCOUNTING STANDARD IMPLEMENTATION AND AUDIT QUALITY

2015 ◽  
Vol 3 (3) ◽  
pp. 801
Author(s):  
Hanifa Zulhaimi ◽  
R. Nelly R. Nelly Nur Apandi
Keyword(s):  
Financial Reporting ◽  
Stock Price ◽  
Audit Quality ◽  
Value Relevance ◽  
Balance Sheet ◽  
Fair Value ◽  
International Accounting ◽  
Net Income ◽  
Comprehensive Income ◽  
Other Comprehensive Income

The implementation of international accounting standards in Indonesia has significantly affected financial reporting. It increases information relevance for the investors because a fair value comprehensively represents assets and liabilities of an entity as of the balance sheet date. However, this triggers polemics over the value relevance of International Financial Reporting Standard (IFRS). This can be seen from stock price decline. This study aims to find out the effect of net income and other comprehensive income on stock price and to observe the effect of other comprehensive income moderated by audit quality. Furthermore this study also aims to find out the effect of  the subjectivity of OCI components. Using a sample of 79 companies, the writer analyzes 2014 financial statements derived from Indonesia Stock Exchange. Based on the result, the predetermined hypotheses are unable to prove. Net income is the only variable that affects stock return. Thus it can be concluded that net income has a value relevance for the investors in making economic decisions.

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