Fair Value Accounting and the Conceptual Framework (original) (raw)

Fair Value Accounting: A Historical Review Of The Most Controversial Accounting Issue In Decades

Journal of Business & Economics Research (JBER), 2010

Historically, there have been many disputes in the area of corporate financial reporting. However, one of the primary issues of disagreement between practitioners, regulators, and theoreticians is that of valuation of financial statement components. The latest twist in the evolution of valuation is the push for (and against) the use of a fair value approach. The purpose of this paper is to examine the history and evolution of how the most critical elements of an entity’s financial statements are valued. We provide a history of valuation of financial statement components, and identify the issues involved. Further, we examine the criticisms of actions taken by the regulatory bodies in their efforts to standardize and advance accounting practices. Particularly, we focus on the evolution of fair value measurements. Arguments both for and against the implementation of fair value accounting are provided.

Fair value accounting: virtues and vices

International Journal of Managerial and Financial Accounting

The radical changes in 'business processes' as well as 'corporate strategies' have mandated the acknowledgement of the immense role of intangibles to corporate bottom lines. Besides, there has been an exponential growth in the spectrum of tradeable financial products. As a consequence, the need for a thoroughly restructured accounting system with standardised norms relating to accounting and reporting of intangibles and complex financial products is immediate to minimise financial debacles (of which there have been many in the last two decades). A lead in this direction was taken by the financial accounting standards board (hereafter referred to as 'FASB') of the USA by pronouncing the financial accounting standards 133, 141, 142 and 157 that usher in the era of 'fair value accounting'. In this article, we highlight some of the issues that are controversial, ambiguous or need further refinement in so far as fair value accounting is concerned.

Fair Value Accounting: A Controversial but Promising System

There is almost a worldwide consensus that the usage of fair value accounting is not an easy task due to a number of limitations that affect its reliability. Prior studies in fair value accounting have unanimously agreed on the existence of clear defects in measuring fair value, especially under level 3 of fair value hierarchy where the active market does not easily exist for the asset or liability. Based on previous literature in the field, the current study discusses the reasons for the ongoing debate on the reliability of fair value accounting and also suggests some relevant procedures to enhance fair value accounting system. In particular, the paper offers some creative suggestions that standard-setters (e.g. FASB and IASB), regulators, practitioners and academics should globally adopt to ensure a brighter future for fair value accounting. In addition, the paper provides a set of the necessary future research avenues in fair value and the related accounting standards.

Fair Value Accounting and the Management of the Firm

Critical Perspectives on Accounting, 2003

The development of accounting standards reveals that the historical cost accounting (HCA) is being replaced by the fair value accounting (FVA) paradigm. FVA, in contrast to HCA that hides the real financial position and income, is more value relevance. The relevance of financial reports should be measured, in addition to association between market and accounting returns, in terms of its contribution to the stewardship function, reduction of agency costs, enhancement of management efficiency, and providing relevant information to stakeholders and workers in their social conflict. FVA-based reports call the attention of shareholders to the value of their equity and enhance the function of stewardship. Managers will be asked to guard the value of shareholders' equity and to account for their efforts. This will causes a basic change in managers' perceptions of their duties. The FVA provides also a complete full disclosure and it is compatible with transparency.

Fair Value Concept Specifics in Financial Reporting and Auditing

Economic Themes, 2015

Investors have become the most important users of financial statements in modern business conditions, and mixed base of financial reporting has been established in order to meet their information needs and it includes elements of the concept of historical cost and the fair value concept, with an increasing shift towards the fair value concept. The primary task of fair value accounting becomes the expression of the fair value of the net assets at the reporting date, while the financial results represent the change in fair value of net assets between the two reporting periods. In our country the application of the "full IFRS" is mandatory for large enterprises and the application of IFRS for SMEs is mandatory for small and medium-sized entities, thus fair value accounting becomes an integral part of the financial statements of domestic companies. However, fair value accounting is not a suitable concept for our country characterized by shallow and underdeveloped financial mar...

In pursuit of legitimacy: A history behind fair value accounting

The British Accounting Review, 2011

An examination of the history of attempts by regulators, practitioners and scholars from the mid nineteenth century to 2005 to establish an appropriate accounting measurement basis for financial reporting here leads to an evaluation of the likelihood of fair value accounting (FVA) practices becoming fully institutionalised. Using concepts drawn from theories of legitimation, it is shown here that historic cost accounting (HCA) only enjoyed an episodic legitimacy in the 1940s-70s and that prior and after this period mixed measurement incorporating market values is routinised. Although principles of FVA have been legitimised to an extent, it is argued here that this has resulted in the practice of mixed measurement bases being taken for granted.