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Fair value accounting and its usefulness to financial statement users

Author

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  • Vera Palea

Abstract

Purpose - – This paper aims to discuss fair value accounting and its usefulness to financial statement users. The European Commission has recently endorsed IFRS 13 on fair value measurement and is considering the endorsement of IFRS 9, which extends the use of fair value for financial instruments. Furthermore, fair value accounting has been under deep scrutiny because of its alleged role in the financial crisis. Therefore, the usefulness of fair value accounting is a key issue for standard setting purposes. Design/Methodology/Approach - – This paper delineates the theoretical background for fair value accounting, it provides empirical evidence on its usefulness, it highlights some controversial issues and makes some proposals for standard setting discussion. Findings - – Empirical research raises some doubts on fair value reliability. Furthermore, fair value accounting alone cannot provide information useful to evaluate stewardship. Historical cost is also needed. A dual measurement and financial reporting system could therefore deliver more complete and useful information to financial statement users. Practical implications - – This paper provides the reader with a comprehensive picture of the main issues related to fair value accounting and contributes to the standard setting debate on the optimal measurement system. Originality/value - – This paper reframes the debate on historical versus fair value accounting by explaining the reason why a dual measurement and reporting model should be implemented.

Suggested Citation

  • Vera Palea, 2014. "Fair value accounting and its usefulness to financial statement users," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 12(2), pages 102-116, September.
    • Handle: RePEc:eme:jfrapp:v:12:y:2014:i:2:p:102-116
    DOI: 10.1108/JFRA-04-2013-0021
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    Citations

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    Cited by:

    1. Mirjana Hladika & Danimir Gulin & Ivana Bernat, 2021. "Revaluation as a Model of Subsequent Measurement of Property, Plant, and Equipment – Case of Croatia," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 23(1), pages 63-95, June.
    2. Habeeb Mohamed Nijam, 2018. "Motives for Reporting Fixed Assets at Revalued Amount: Evidence from a Developing Economy," Global Business Review, International Management Institute, vol. 19(3), pages 604-622, June.
    3. Dehong Wang & Jianbo Song & Yue Zhang, 2017. "Does Market Welcome the International Convergence of Fair Value Standard in China?," Applied Finance and Accounting, Redfame publishing, vol. 3(2), pages 1-13, August.
    4. Palea, Vera & Biancone, Paolo Pietro, 2017. "Which Accounting Rules for Economic and Social Sustainable Development? Engaging Critically with IFRS Adoption in the EU," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201733, University of Turin.
    5. Palea, Vera, 2019. "Accounting for Sustainable Finance: Does Fair value Accounting Fit for Long-term Investing in Equity?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201912, University of Turin.
    6. Tomáš Vaněk & David Hampel, 2017. "The Probability of Default Under IFRS 9: Multi-period Estimation and Macroeconomic Forecast," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(2), pages 759-776.
    7. Md. Tahidur Rahman & Syed Zabid Hossain & Md. Anwarul Haque, 2021. "Timing, Recurrence, and Effects of Fixed Asset Revaluation: Evidence from Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 11(2), pages 67-75.
    8. Árni Claessen, 2021. "Relevance of Level 3 fair value disclosures and IFRS 13: a case study," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(4), pages 378-390, December.
    9. Peterson Kitakogelu Ozili, 2020. "Financial reporting under economic policy uncertainty," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 19(2), pages 325-338, December.
    10. Mojca Gornjak, 2017. "Comparison of IAS 39 and IFRS 9: The Analysis of Replacement," International Journal of Management, Knowledge and Learning, International School for Social and Business Studies, Celje, Slovenia, vol. 6(1), pages 115-130.

    More about this item

    Keywords

    Value relevance; Dual measurement system; Fair value accounting; Financial statement reliability; IFRS 13; M41; G10;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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