The Decision Usefulness of Fair Value Accounting - A Theoretical Perspective
AbstractRegulators such as the SEC and standard setting bodies such as the FASB and the IASB argue the case for the conceptual desirability of fair value measurement, notably on the relevance dimension. Recent standards on financial instruments and certain non-financial items adopt the new measurement paradigm. This paper takes issue with the notion of decision usefulness of a fair-value-based reporting system from a theoretical perspective. Emphasis is put on the evaluation of the theoretical soundness of the arguments put forward by regulators and standard setting bodies. The analysis is conducted as economic (a priori) analysis. Two approaches to decision usefulness are adopted, the measurement or valuation perspective and the information perspective. Findings indicate that the decision relevance of fair value measurement can be justified from both perspectives, yet the conceptual case is not strong. The information aggregation notion that underlies standard setters' endorsement of fair value measurement turns out to be theoretically restricted in its validity and applicability. Also, comparative analysis of fair value accounting vs. historical cost accounting yields mixed results. One immediate implication of the research - a condition for the further implementation of fair value accounting - is the need to clarify standard setters' notion of accounting income, its presumed contribution to decision relevance and its disaggregation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal European Accounting Review.
Volume (Year): 16 (2007)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.tandfonline.com/REAR20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Yuan Ding & Thomas Jeanjean & Cédric Lesage & Hervé Stolowy, 2009. "An Experiment in the Economic Consequences of Additional Disclosure: The Case of the Fair Value of Unlisted Equity Investments," Post-Print halshs-00458950, HAL.
- Y. Biondi & P. Giannoccolo & A. Reberioux, 2010. "Financial disclosure and the Board: A case for non-independent directors," Working Papers 689, Dipartimento Scienze Economiche, Universita' di Bologna.
- Masaki Kusano, 2012. "Does the Balance Sheet Approach Improve the Usefulness of Accounting Information?," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 2, pages 139-152, December.
- Fülbier, Rolf Uwe & Klein, Malte, 2013. "Financial accounting and reporting in Germany: A case study on German accounting tradition and experiences with the IFRS adoption," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2013-01, University of Bayreuth, Chair of Finance and Banking.
- Ulf Brüggemann & Jörg-Markus Hitz & Thorsten Sellhorn, 2012.
"Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research,"
SFB 649 Discussion Papers
SFB649DP2012-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Ulf Br&?ggemann & J?rg-Markus Hitz & Thorsten Sellhorn, 2013. "Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 22(1), pages 1-37, May.
- Chedli Baccouche & Sana Ben Ghodbane, 2012. "Fair value evaluation: analysis and determinants," International Journal of Critical Accounting, Inderscience Enterprises Ltd, vol. 4(1), pages 77-91.
- David Procházka, 2009. "The Hicks’ Concept of Income and Its Relevancy for Accounting Purposes," European Financial and Accounting Journal, University of Economics, Prague, vol. 2009(1), pages 37-60.
- Schaltegger, Stefan & Burritt, Roger L., 2010. "Sustainability accounting for companies: Catchphrase or decision support for business leaders?," Journal of World Business, Elsevier, vol. 45(4), pages 375-384, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.