English

Andrejcik Dusan,Halari Anwar,Singh Gurcharan

doi:10.5897/jat2021.0483

Abstract

This paper reviews the existing and emerging perspectives on fair value accounting (FVA) in the context of the stewardship function of financial reporting. This study draws on diverse research threads and theoretical notions to advance a comprehensive assessment of existing FVA research in the context of the trade-off between decision-usefulness and the stewardship objective. By conducting a narrative literature review, the authors identify two distinct domains of literature: FVA- a result of a conceptual shift in financial reporting; and FVA- an enhancement of decision-usefulness in general-purpose financial reporting. This study posits that FVA can be considered as an evolutionary, rather than revolutionary, development in financial reporting measurement which emerged from financialisation and globalisation of economies. It is further suggested that the ability of FVA to provide stewardship-relevant information may be reduced due to the emphasis it places on the provision of decision-useful information for investment purposes. Therefore, the authors call for a greater engagement between policy-setters and researchers when choosing conceptual underpinnings for financial measurement objectives.   Key words: Fair value accounting, stewardship function, decision usefulness, IFRS 13.

Highlights

Regarded as a „quiet revolution‟ in financial reporting, growing controversy surrounds the subject of financial measurement due to a perceived movement from the traditional basis of financial measurement towards a „new‟ basis of fair value accounting (FVA)
In doing so, existing literature has been categorised into two distinctive domains: FVA as a result of conceptual shift in financial reporting; and FVA as an enhancement of the decision-usefulness of general-purpose financial reporting
The existing FVA research demonstrates that the style of argument adopted tends to be top-down and deductive

Summary

INTRODUCTION

Regarded as a „quiet revolution‟ in financial reporting, growing controversy surrounds the subject of financial measurement due to a perceived movement from the traditional basis of financial measurement (historical cost) towards a „new‟ basis of fair value accounting (FVA). The authors argue that the impact of FVA cannot be fully understood without considering the long-standing objective of financial reporting, the stewardship function, and without factoring in the developments in the major accounting standards. While the authors do not argue that the stewardship function entails close adherence to historical cost accounting, this study reflects upon the argument that FVA hinders the generation of information that could fully replicate stewardship effects (Ronen, 2008; Lennard, 2007; Whittington, 2008). The adoption of fair value accounting, primarily served by market input, has been justified by its ability to provide decision-relevant information to investors to predict future cash flows. Subjectivity, typically acknowledged as an issue in narrative reviews, can be mitigated by borrowing more rigorous strategies from systematic literature review methodology (Hammersley, 2001; Jones and Gatrell, 2014)

METHODOLOGY

Conclusion