Commentary: Financial Reporting and Financial Crises: The Case for Measuring Financial Instruments at Fair Value in the Financial Statements

CFA Digest ◽  
2011 ◽  
Vol 41 (4) ◽  
pp. 59-61
Author(s):  
Natalie Schoon
Keyword(s):  
Financial Reporting ◽  
Financial Crises ◽  
Financial Statements ◽  
Fair Value ◽  
Financial Instruments

Financial Reporting and Financial Crises: The Case for Measuring Financial Instruments at Fair Value in the Financial Statements

2011 ◽  
Vol 25 (2) ◽  
pp. 409-417 ◽  
Author(s):  
Thomas J Linsmeier
Keyword(s):  
Financial Reporting ◽  
Financial Crises ◽  
Cost Model ◽  
Financial Statements ◽  
Fair Value ◽  
The United States ◽  
Lessons Learned ◽  
Bank Failures ◽  
Financial Instruments ◽  
Financial Condition

SYNOPSIS The Financial Accounting Standards Board (FASB) (2010) proposes that all financial instruments be measured at fair value in the financial statements. This commentary provides one Board member's reasoning for supporting this proposal, which is based on (1) evidence that the amortized cost model failed to provide timely information about the deteriorating financial condition of failed banks in the current financial crisis, (2) lessons learned from prior financial crises affecting financial institutions in the United States and Japan, and (3) research evidence indicating that fair value measures are most highly correlated with banks' exposures to interest rate and credit risk—two key risk exposures that have led to bank failures in the three most recent financial crises.

FINANCIAL CRISES AND THE PUBLICATION OF THE FINANCIAL STATEMENTS OF BANKS IN SPAIN, 1844–1868

2004 ◽  
Vol 31 (2) ◽  
pp. 1-26 ◽  
Author(s):  
Mercedes Bernal Lloréns
Keyword(s):  
19Th Century ◽  
Financial Reporting ◽  
Economic Performance ◽  
Financial Crises ◽  
Limited Liability ◽  
Financial Statements ◽  
Early Response ◽  
Banking Regulations ◽  
The Stability ◽  
The Relationship

Financial crises have had a decisive influence on banking regulations in Spain. During the mid-19th century the publication of the financial statements of banks was considered key to the stability of the financial system. All new joint stock banking companies were to publish their statements in the Madrid Gazette in return for the privilege of limited liability. Similar obligations were placed on issuing banks. The copious publication of financial statements coincided with a period of financial prosperity. However, the crises that followed from 1864 to 1868 led to a reduction in the official publication of statements. This paper is concerned with an early response to crises in financial reporting. The study focuses on the relationship between the publication of accounting statements by banks and the GDP in Spain during the mid-19th century. The results suggest that the frequency of publication of financial statements may be an indicator of economic performance.

Issues and challenges of IFRS 9 in Malaysian Islamic financial institutions: recognition criteria perspective

2021 ◽  
Vol 12 (2) ◽  
pp. 239-257
Author(s):  
Marziana Madah Marzuki ◽  
Abdul Rahim Abdul Rahman ◽  
Ainulashikin Marzuki ◽  
Nathasa Mazna Ramli ◽  
Wan Amalina Wan Abdullah
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Business Models ◽  
Fair Value ◽  
Financial Instruments ◽  
Structured Interviews ◽  
Content Type ◽  
Reporting Framework ◽  
Islamic Financial Institutions ◽  
Ifrs 9

Purpose The purpose of this paper is to investigate the effects and challenges of the new amendment of International Financial Reporting Standards (IFRS) 9 in Malaysia from the perspectives of regulators, auditors, accountants and academicians in Malaysian Islamic financial institutions. For the purpose of this study, this paper focuses on the recognition criteria perspective of the standard, which provides a basic understanding of the financial reporting framework. Design/methodology/approach Using 10 series of semi-structured interviews undertaken with key individuals in regulatory bodies, audit companies, full-fledged Malaysian Islamic Banks and Malaysian higher learning institutions. Findings The findings revealed that IFRS 9 strengthens International Accounting Standards 39 in terms of relevance and reliability, recognition of financial instruments and identification of business models. Nevertheless, Islamic financial institutions face challenges in terms of a faithful representation of fair value, substance over form, identification of financial instruments before recognition criteria and the extent of the role of risk management in reducing manipulation in identifying business models. Research limitations/implications This study provides implications to regulators and standard setters in Malaysia to enhance the quality of financial reporting framework and practices in Islamic financial institutions in this country using IFRS 9. Practical implications Practically, the findings of this study can be used by the regulators to resolve the issues that arise in adopting IFRS 9 among Islamic financial institutions to further enhance financial reporting quality. Originality/value The findings of this study are very important to ensure that the adoption of IFRS among Islamic financial institutions are in line with Sharīʿah principles. To date, no studies have been done on the challenges of adopting IFRS 9 among Islamic financial institutions in Malaysia.

A Study of Impact of IFRS Convergence in India on Debt–Equity Components of Financial Statements

2020 ◽  
pp. 097215092091846
Author(s):  
Saumya Jain ◽  
Chandra Prakash Gupta
Keyword(s):  
Decision Making ◽  
Financial Reporting ◽  
Financial Statements ◽  
Annual Reports ◽  
Practical Relevance ◽  
Reporting Standards ◽  
Financial Instruments ◽  
Financial Reporting Standards ◽  
Significant Difference ◽  
The Impact

The present article analyses the impact of International Financial Reporting Standards (IFRS) convergence on financial statements in India. Our focus is on the most significant and challenging standard, that is, IND-AS (financial instruments). Our focus is on the most significant and challenging standard i.e IND-AS(Financial Instruments) and their impact on debt-equity classification brought about by the new standard(s). We analyse the annual reports of 30 listed entities having outstanding preference share capital for the years 2015–2016 and 2016–2017. We redefine the formulae of ratios most commonly used in loan agreements (popularly referred to as ‘debt covenants’) from lenders’ perspective and empirically examine the impact of IFRS convergence on the value of these ratios for the same financial year, that is, 2015–2016. Our results show that there is a significant difference in the value of ratios calculated using newly developed formulae and by applying the old formulae on new data. The study is the first of its kind to empirically examine the impact of IND-AS specifically standard relating to financial instruments on debt ratios in India. Our contribution to the literature is that we not only examine the impact on ratios on transition to IND-AS but also offer a solution as to how the users can mitigate this impact by making adjustments to the debt ratios taking into account the recognition, measurement and presentation changes brought about by IND-AS, so that they can apply our newly developed formulae directly on IND-AS statements and derive the same meaning and interpretation from the ratios as before retaining their practical usage. Thus, our study is of immediate practical relevance to lenders, credit managers and investors aiding their decision making.

Примена опрезности у финансијском извештавању – навика или потреба? // Application of prudence in financial reporting – a habit or necessity?

2018 ◽  
Vol 13 (22) ◽  
pp. 63
Author(s):  
Ката Шкарић Јовановић
Keyword(s):  
Conceptual Framework ◽  
Financial Reporting ◽  
Empirical Studies ◽  
Financial Statements ◽  
Radical Change ◽  
Fair Value ◽  
Time Asymmetry ◽  
Historical Cost ◽  
Primary Users ◽  
Gains And Losses

Резиме: Финансијско извештавање већ више векова с правом се означава као конзервативно. Начело опрезности чија премена генерише конзервативизам, а које се одликује временском асиметријом у признавању губитака и добитака, не само да је једно од најстаријих, већ и једно од најутицајнијих правила у финансијском извештавању. Означавање инвеститора, поверилаца и осталих зајмодаваца као примарних корисника финансијских извештаја довело је до тога да се у Концептуалном оквиру финансијског извешавања неутралној презентацији финансијских извештаја даје апсолутни примат у односу на опрезност, која је означена као непожељна. Бројна емпиријска истраживања, у великој мери изазвана и оваквом радикалном променом, показала су да су користи од примене конзервативизма у финансијском извештању и у данашњим околностима такве да се увелико надилазе његове слабости. С дуге стране, неутралност се може постићи у презентацији појединих позиција финансијских извшетаја али не при постојећим околностима и финансијских извештаја у целини. Заменом опрезности са неутралношћу нарушена је конзистентност која је нужна између Концептуалног оквира за финансијско извештавање и МРС/МСФИ. У многим од МРС/МСФИ садржани су захтеви за признавање и вредновање који су засновани на опрезности. Испуњавање ових захтева неминовно води конзервативизму у презентацији финансијских извештаја. Како су МРС/МСФИ изграђени на мешовитој основи коју чине: концепт историјског трошка, с којим је чврсто повезана опрезност, и концепт фер вредности, за који се везује неутралност. Стога се сасвим основано у презентацији финансијских извештаја могу очекивати и неутрално и конзервативно презентиране информације. Враћањем опрезности у Концептуални оквир финансијског извештавања осим што би била отклоњена неконзистност која постоји између њега као основе на којој се ревидирају постојећи и доносе нови стандарди, био би потврђен допринос конзервативизма заштити интереса поверилаца и инвеститора.Summary: For many centuries financial reporting has been rightfully labeled as conservative. The principle of prudence whose application generates conservatism, which is characterized by time asymmetry in the recognition of gains and losses, is not only one of the oldest but also one of the most influential rules in financial reporting. Determining the investors, creditors and other lenders as primary users of financial statements has led to the fact that in the Conceptual Framework for Financial Reporting the neutral presentation of financial statements has the absolute precedence over prudence, which is marked as undesirable. Numerous empirical studies largely caused by such a radical change have shown that the benefits of application of conservatism in financial reporting and in the present circumstances are such that they greatly surpass its weaknesses. On the other hand, neutrality can be achieved in the presentation of certain positions in financial statements but not under the existing circumstances and financial statements in general. Substituting prudence with neutrality violates consistency, which is necessary between the Conceptual Framework for Financial Reporting and IAS/IFRS. Many of IAS/IFRS contain requests for recognition and validation that are based on the prudence. Meeting these requests will inevitably lead to conservatism in the presentation of financial statements. Since IAS/IFRS are built on a mixed basis consisting of the historical cost concept, which is tightly linked with prudence, and fair value concept, which is linked with neutrality, then it is quite reasonable to expect both neutrally and conservatively presented information in the presentation of financial statements. By restoring prudence in the Conceptual Framework for Financial Reporting, besides eliminating inconsistence that exists between it as a basis for revising existing and adopting new standards, contribution of conservatism to protecting the interests of creditors and investors would be confirmed.

scholarly journals ФОРМУВАННЯ ОБЛІКОВОЇ ПОЛІТИКИ ЗА ПРИНЦИПОМ БЕЗПЕРЕРВНОСТІ ДІЯЛЬНОСТІ ПІДПРИЄМСТВ

2021 ◽  
pp. 74-81
Author(s):  
Олена Сергіївна Юрченко
Keyword(s):  
Financial Reporting ◽  
Information Needs ◽  
Accounting Standards ◽  
Financial Statements ◽  
Fair Value ◽  
The Real ◽  
Real Value ◽  
The Impact ◽  
Accounting Policy

Formulation of the problem. Based on the study, the prerequisites, features and components of the formation of accounting policies in the context of business continuity are revealed. The purpose of the article is to substantiate the theoretical and methodological and organizational provisions of accounting policy formation in the context of the implementation of the concept of continuity. The object of research is the process of formation of accounting policy and its impact on the quality of corporate financial reporting information. Methods used in the study: scientific knowledge, method of generalization, comparison, logical - meaningful, methods of induction and deduction. The main hypothesis is that the formation of accounting policies aimed at determining the regulations of accounting and reporting from the standpoint of reflecting complete and reliable information about the real value of assets and liabilities will help reconcile the interests of all stakeholders. Presenting main material. The article identifies the prerequisites, directions and elements of the formation of accounting policies on the principle of continuity of enterprises. Provisions on the development of theoretical and methodological foundations for the formation of accounting policies of enterprises on the basis of risk-oriented approach are revealed. The necessity of valuation of assets and liabilities according to the criteria: fair, discounted and market value of enterprises is substantiated and the methodological support of valuation of financial instruments in accounting is revealed. Originality and practical significance are proposals for the formation of methodological and organizational support and recommendations for the measurement of assets and liabilities at fair value in order to improve the quality of financial statements. Research findings. The formation of accounting policy in the context of the principle of continuity is based on the requirements of International Accounting Standards and National Accounting Standards and depends on the needs of management, methods and techniques of accounting. In the process of developing an accounting policy, it is necessary to take into account the information needs of various stakeholders to disclose information in corporate financial statements. The introduction of theoretical and methodological provisions for the formation of elements of accounting policy on the principle of continuity will meet the information needs of different users, improve the quality of financial reporting and assess the impact of accounting policies on the real value of enterprises in the future.

scholarly journals Requirements for the possibility of applying international accounting standards on financial instruments-an applied study in the national bank of Baghdad

2019 ◽  
Vol 7 (1) ◽  
pp. 142-180
Author(s):  
Dilan Abdullah Mohammed ◽  
Basira Majeed Najm
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Financial Statements ◽  
Fair Value ◽  
Interest Rate Risk ◽  
International Accounting ◽  
Financial Instruments ◽  
Accounting Standard ◽  
Important Place ◽  
International Accounting Standard

The reality today proves that growth and success have become the share of financial markets that have learned how to read the road map and achieve leadership by investing in the so-called derivatives, where the center of gravity in financial markets has shifted from relying on simple financial instruments to relying on Great for innovation and creativity to create innovative financial products that cover the needs of investors. The issue of derivatives has become an important place in global markets. The importance of this study is illustrated by the nature of the accounting treatment of these instruments and how they are disclosed in the annual financial statements of companies and banks dealing with them according to the international accounting standard No. (32) and how to recognize and measure the financial instruments, and disclose them according to the International Accounting Standard No. (7-9), in order to clarify the nature of the analysis required to determine the correct accounting processing when using these instruments, as the financial statements published by the dealers of financial instruments and provided to end users must include sufficient information about them with To clarify the risks for which the transactions were carried out, the extent to which such information is covered (is it for hedging purposes or for trading purposes), the degree of risk and how to account for it, and through this process has been concluded among the most important risks to which the bank is exposed is the risk of changing interest rates, given that the net Interest income constitutes a large percentage of the bank's returns, the interest rate risk is particularly important, as the case of high interest rates creates for banks the risk of paying higher rates on deposits for the future and other bank demands compared to what they get from their glory, and the situation is quite the opposite when the Shame interest. The study recommends that the bank dealing in derivative financial instruments distinguish between the profitability of trading in these and other investment instruments, and for the instruments used for the purposes of hedging the risk of interest rates, as well as the bank to clarify the accounting methods used The bank must disclose the fair value of both hedge stake and hedge funds. 

scholarly journals El modelo de valor razonable: La aproximación de las cifras contables a los valores de mercado (The fair value model: The aproach of the accounting figures to the market values)

2014 ◽  
Vol 8 (3) ◽  
pp. 41
Author(s):  
Eduardo Sosa Mora
Keyword(s):  
Financial Reporting ◽  
Theory Of The Firm ◽  
Financial Statements ◽  
Fair Value ◽  
Reporting Standards ◽  
Market Prices ◽  
Financial Reporting Standards ◽  
Market Values ◽  
Future Events ◽  
Value Model

<p>Desde hace muchos años, en el ámbito académico y en el profesional de la contabilidad, se debate acerca de la importancia de que los estados financieros presenten los activos y pasivos de acuerdo con sus valores de mercado, con el fin de lograr una mejor aproximación a los valores económicos de las empresas. Esto ha propiciado que, en las Normas Internacionales de Información Financiera (NIIF), haya adquirido relevancia el modelo del valor razonable, según el cual los activos y pasivos se miden por sus valores <br />de mercado. La adopción de este modelo significa la instrumentación de la teoría del valor de la empresa y una mayor aproximación de la contabilidad a la teoría de las finanzas, cuyos beneficios deben sopesarse con los riesgos asociados a la obtención de cifras contables a partir de precios de mercado y de supuestos acerca de eventos esperados en el futuro. Este artículo expone los alcances de la adopción de ese modelo en el esfuerzo por lograr que los estados financieros representen fielmente las realidades económicas de las empresas.</p><p> </p><p><strong>Abstract </strong></p><p> </p><p>Since many years ago in the Accounting academic and professional circles there is a debate about the importance that the financial statements represent the assets and liabilities according with their market values, in order to get a better approximation to the economic values of the enterprises. Because of this the fair value model has gained relevance in the International Financial Reporting Standards (IFRS). According with this model, the assets and liabilities are measured by their market values. The adoption of <br />this model means the implementation of the theory of the firm and a greater approximation the Accounting to the Financial Theory, whose benefits must be weighted with the risks of getting accounting figures by using market prices and assumptions about future events. This paper expounds the scopes of adopting this model in the effort to assure that the financial statements represent faithfully the economic realities of the enterprises.</p>

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

2019 ◽  
Vol 16 (2) ◽  
pp. 8-18 ◽  
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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