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Fair Value Measurement in Financial Reporting

Author

Listed:
  • Hodder, Leslie
  • Hopkins, Patrick
  • Schipper, Katherine

Abstract

This monograph provides a historically informed discussion of conceptual and procedural issues related to the use of the fair value measurement attribute in financial reporting. Our goal is to provide a structure, based on the conceptual frameworks of the Financial Accounting Standards Board and International Accounting Standards Board, for researchers’ evaluations of empirical research studies that investigate the informational properties of all measurement bases, including fair values. We begin by defining, addressing misconceptions about, and providing a brief history of the fair value measurement 1400000030attribute. We next discuss decision usefulness of fair value and other measurement bases, and describe and evaluate examples of empirical research that documents the decision usefulness of recognized and disclosed fair value information, focusing on predictive ability, value relevance, and risk relevance.We also discuss the role of verifiability in the context of relevant and faithfully represented accounting information; describe three untested, verifiability-related maintained assumptions that arise in discussions of fair-value-measurement research; and discuss research designs for investigating questions related to accounting measurement verifiability. Finally, we discuss claims that use of the fair value measurement attribute causes procyclical behavior among financial institutions and that accounting standards have become increasingly fair-value-oriented during the last two decades.

Suggested Citation

  • Hodder, Leslie & Hopkins, Patrick & Schipper, Katherine, 2014. "Fair Value Measurement in Financial Reporting," Foundations and Trends(R) in Accounting, now publishers, vol. 8(3-4), pages 143-270, December.
    • Handle: RePEc:now:fntacc:1400000030
    DOI: 10.1561/1400000030
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    Citations

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    Cited by:

    1. Petrus H. Ferreira & Roman Kräussl & Wayne R. Landsman & Maria Nykyforovych Borysoff & Peter F. Pope, 2019. "Reliability and relevance of fair values: private equity investments and investee fundamentals," Review of Accounting Studies, Springer, vol. 24(4), pages 1427-1449, December.
    2. Anderson, Spencer B. & Brown, Jason L. & Hodder, Leslie & Hopkins, Patrick E., 2015. "The effect of alternative accounting measurement bases on investors’ assessments of managers’ stewardship," Accounting, Organizations and Society, Elsevier, vol. 46(C), pages 100-114.
    3. P. Barrett Wheeler, 2021. "Unrecognized Expected Credit Losses and Bank Share Prices," Journal of Accounting Research, Wiley Blackwell, vol. 59(3), pages 805-866, June.
    4. McDonough, Ryan P. & Shakespeare, Catherine M., 2015. "Fair value measurement capabilities, disclosure, and the perceived reliability of fair value estimates: A discussion of Bhat and Ryan (2015)," Accounting, Organizations and Society, Elsevier, vol. 46(C), pages 96-99.
    5. Ryan McDonough & Argyro Panaretou & Catherine Shakespeare, 2020. "Fair value accounting: Current practice and perspectives for future research," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(3-4), pages 303-332, March.
    6. Emett, Scott A. & Libby, Robert & Nelson, Mark W., 2018. "PCAOB guidance and audits of fair values for Level 2 investments," Accounting, Organizations and Society, Elsevier, vol. 71(C), pages 57-72.
    7. Morris, Richard D. & Kang, Helen & Jie, Jing, 2016. "The determinants and value relevance of banks' discretionary loan loss provisions during the financial crisis," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(2), pages 176-190.
    8. He, Liyu & Hsin-han Shen, Carl & Shiu, Cheng-Yi, 2022. "Is fair value information fairly priced? Evidence from IPOs in global capital markets✰," Journal of Banking & Finance, Elsevier, vol. 135(C).

    More about this item

    Keywords

    Fair value measurement; Accounting standards; Accounting information; Financial reporting; Accounting measurement;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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