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The Worth of Fair Value Accounting: Dissonance between Users and Standard Setters

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  • Omiros Georgiou

Abstract

Investors and analysts are designated as the primary users of financial reports by standard setters, yet we know very little about their use of accounting information and about their relationship with standard setters. This paper explores how investors and analysts evaluate the usefulness of fair values to their work. Standard setters typically presume that investors and analysts view accounting as a practice of valuation and, therefore, favor the greater use of fair value measurement. However, using interview evidence, it is shown here that investors and analysts expect accounting to provide them with insights into the performance of a business, and are quite cautious about the limits of using fair values in financial reports. Overall, the paper contributes to a better understanding of the relationship between accounting and its users. It adds specifically to research which has analyzed the disconnect between users and standard setters in terms of standard setters ignoring user needs (Young ), and in terms of users being indifferent about, or uncritical of, outcomes of standard‐setting processes (Durocher, Fortin, and Cote ; Durocher and Gendron ). The paper suggests a re‐theorization of the disconnect between the two groups that involves thinking away from tension, or blame. Drawing on the work of David Stark (), the situation observed is conceptualized as one of “dissonance,” where the different ways of evaluating fair values coexist without being involved in a fierce contest. That is, even though the principles of valuation and performance differ, this difference does not lead to open disagreement and political lobbying from investors and analysts. Consequences of this dissonance to our understandings of the (absence of) worth of fair values in capital markets are discussed. Investisseurs et analystes sont reconnus comme étant les principaux utilisateurs des rapports financiers des normalisateurs; nous en savons pourtant très peu au sujet de l'utilisation qu'ils font de l'information comptable et de leur relation avec les normalisateurs. L'auteur se demande comment les investisseurs et les analystes évaluent l'utilité des justes valeurs dans leur travail. De façon générale, les normalisateurs présupposent que les investisseurs et les analystes tiennent la comptabilité pour un exercice d’évaluation et, par conséquent, sont favorables à une utilisation accrue de l’évaluation à la juste valeur. Or, les données que recueille l'auteur dans le cadre d'entrevues révèlent que les investisseurs et les analystes s'attendent à ce que la comptabilité les renseigne sur la performance de l'entreprise et que les limites de l'utilisation des justes valeurs dans les rapports financiers leur inspirent une assez grande prudence. Dans l'ensemble, l’étude contribue à une meilleure compréhension de la relation entre la comptabilité et ses utilisateurs. Elle enrichit plus précisément les recherches qui portent sur l'analyse de l’écart qui sépare les utilisateurs des normalisateurs, les seconds ignorant les besoins des premiers (Young, 2006) et les utilisateurs envisageant les processus de normalisation avec indifférence ou sans esprit critique (Durocher, Fortin et Côté, 2007; Durocher et Gendron, 2011). Les auteurs proposent une nouvelle théorisation de l’écart entre les deux groupes qui supposerait la renonciation aux tensions ou au blâme. En s'inspirant des travaux de David Stark (2009), ils conceptualisent la situation observée comme un cas de « discordance » dans lequel différents modes d’évaluation à la juste valeur coexistent sans s'opposer dans une ferme rivalité. En d'autres termes, même si les principes de l’évaluation et de la performance diffèrent, cette divergence n'aboutit ni à un conflit ouvert ni à un lobbyisme politique des investisseurs et des analystes. Les auteurs analysent les répercussions de cette discordance sur notre compréhension (ou notre incompréhension) du mérite des justes valeurs sur les marchés financiers.

Suggested Citation

  • Omiros Georgiou, 2018. "The Worth of Fair Value Accounting: Dissonance between Users and Standard Setters," Contemporary Accounting Research, John Wiley & Sons, vol. 35(3), pages 1297-1331, September.
  • Handle: RePEc:wly:coacre:v:35:y:2018:i:3:p:1297-1331
    DOI: 10.1111/1911-3846.12342
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    Cited by:

    1. Lantto, Anna-Maija, 2022. "Obtaining entity-specific information and dealing with uncertainty: Financial accountants' response to their changing work of financial reporting and the role of boundary objects," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 85(C).
    2. Clune, Conor & O’Dwyer, Brendan, 2020. "Organizing dissonance through institutional work: The embedding of social and environmental accountability in an investment field," Accounting, Organizations and Society, Elsevier, vol. 85(C).
    3. Stenka, Renata, 2022. "Beyond intentionality in accounting regulation: Habitual strategizing by the IASB," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 88(C).
    4. Matthew Bamber & Santhosh Abraham, 2020. "On the “Realities” of Investor‐Manager Interactivity: Baudrillard, Hyperreality, and Management Q&A Sessions†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 1290-1325, June.
    5. Morley Julia, 2022. "The Pluralistic Foundations of Conceptual Veiling," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 12(2), pages 191-210, May.
    6. Cascino, Stefano & Clatworthy, Mark A. & Osma, Beatriz Garcia & Gassen, Joachim & Imam, Shahed, 2021. "The usefulness of financial accounting information: evidence from the field," LSE Research Online Documents on Economics 107569, London School of Economics and Political Science, LSE Library.
    7. Tatiana Garanina & Henri Hussinki & Johannes Dumay, 2021. "Accounting for intangibles and intellectual capital: a literature review from 2000 to 2020," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5111-5140, December.
    8. Morley, Julia, 2022. "The pluralistic foundations of conceptual veiling," LSE Research Online Documents on Economics 114359, London School of Economics and Political Science, LSE Library.
    9. Martin Glaum, 2020. "Financial Reporting in Non-listed Family Firms: Insights from Interviews with CFOs," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 72(2), pages 225-270, April.
    10. Durocher, Sylvain & Georgiou, Omiros, 2022. "Framing accounting for goodwill: Intractable controversies between users and standard setters," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 89(C).
    11. Maroun, Warren & Duboisée de Ricquebourg, Alan, 2024. "How auditors identify and report key audit matters - An organizational routines perspective," The British Accounting Review, Elsevier, vol. 56(2).
    12. Yasmine Chahed, 2021. "Words and Numbers: Financialization and Accounting Standard‐Setting in the United Kingdom," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 302-337, March.
    13. Warren Maroun & Wayne van Zijl & Rottok Chesaina & Robert Garnett, 2022. "The Beautiful Game: Fair Value, Accountability and Accounting for Player Registrations," Australian Accounting Review, CPA Australia, vol. 32(3), pages 334-351, September.
    14. Johannes Thesing & Patrick Velte, 2021. "Do fair value measurements affect accounting-based earnings quality? A literature review with a focus on corporate governance as moderator," Journal of Business Economics, Springer, vol. 91(7), pages 965-1004, September.
    15. Tiago Cardao-Pito, 2021. "An embezzler test for norms, standards and regulations," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 29(3), pages 878-889, August.

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