Fair Value Measurement Research Articles

The evolution of fair value measurement

While measurement is a fundamental process to the preparation of financial statements, the conceptual frameworks established by both the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) offer limited guidance on selecting an appropriate measurement basis for assets and liabilities. This paper examines the historical progression of fair value measurement, a measurement basis that is at the centre of some of the most polarising views. We believe that understanding the evolution of fair value measurement is pivotal for aiding academics and practitioners in shaping the future trajectory of measurement. This is particularly crucial given the technological advances in corporate reporting and the need to enhance the connectivity between financial and non-financial reporting.

ANALYSIS OF ACCOUNTING TREATMENT OF BIOLOGICAL ASSETS BASED ON PSAK NO. 69 AT LATONANG FARM PAREPARE CITY

This research aims to determine the accounting treatment of biological assets based on PSAK No. 69 at Latonang Farm and to determine the accounting treatment of biological assets at Latonang Farm from a sharia perspective as well as the implications of implementing PSAK No. 69 to the financial statements of Latonang Farm's biological assets. This was done to analyze the suitability of the accounting treatment for Latonang Farm's biological assets with PSAK No. 69. This research uses qualitative methods with a case study approach and field research. The data collection and data processing techniques use observation, interview and documentation methods. The validity test of the data used in this research is the credibility test. Meanwhile, the data analysis techniques used are data reduction, data presentation and drawing conclusions. The research results show that the accounting treatment of biological assets is based on PSAK No. 69 at Latonang Farm is generally in line with the provisions of PSAK No. 69. However, there are differences regarding the measurement of fair value. Latonang Farm does not revaluate the value of biological assets, but instead uses the acquisition price with adjustments at the end of each period. This approach was chosen because of the difficulty of measuring the value of biological assets precisely. This action is permitted in accordance with the provisions of PSAK No. 69 paragraph 30. Apart from that, the accounting treatment of biological assets at Latonang Farm is also in accordance with the sharia perspective, where the principles of honesty, trust and benefit are applied.

Effect of corporate governance and enforcement on fair value accounting in Brazil

PurposeThis paper aims to investigate whether Brazilian firms that legally bond to stricter enforcement and commit to stringent corporate governance requirements experience increased value relevance of discretionary fair value measurements (Levels 2 and 3), and how different measurement levels are associated with firms’ systematic risk.Design/methodology/approachThe Brazilian data’s distinctive feature helps in analyzing fair value’s relevance in an emerging market with heterogeneous enforcement regimes. Given the inherent self-selection in corporate governance levels and cross-listing decisions, the authors use a two-step generalized method of moments approach. Building upon Song et al.’s (2010) framework, the authors carefully address potential selection biases. Furthermore, the authors expand Riedl and Serafeim’s (2011) model, based on Ohlson’s (1995) model, to explore whether the negative correlation between Level 1 net assets (assets minus liabilities) and firms’ beta is more pronounced compared to Levels 2 or 3 net assets. Additionally, the authors investigate whether this relationship intensifies when firms align themselves with enhanced governance structures and stricter enforcement regimes.FindingsFair value measurements which require more judgment (Levels 2 and 3) are more value-relevant when a firm is legally bonded to higher enforcement and better corporate governance. Level 1 fair values of these firms’ net assets are associated with lower systematic risk, while Levels 2 and 3 fair values (high subjectivity valuation) are not.Originality/valueThe authors show that firms that bond to better corporate governance and stricter enforcement regimes mitigate the information risk involved in subjective fair-value measurements.

The Role of Fair Value Accounting in Debt Structure Decisions: Evidence from Priority Structure and Financial Flexibility

Synopsis The research problem This study investigates whether the debt structure of a firm — that is, how a firm organizes its debt contracts — depends on the extent to which fair value measurement is applied to the balance sheet. Motivation Most public firms have a nontrivial percentage of balance sheet items measured at fair value under the mixed attribute accounting, and there is a lack of understanding of its effect on the reporting entity’s debt structure. This study focuses on two aspects of the debt structure that have both practical and theoretical relevance, namely the priority structure and the financial flexibility. A priority structure involves the simultaneous use of different priorities of debt and is common among risky borrowers. Survey results show that financial flexibility is of first-order importance regarding the debt policy of firms. Here, financial flexibility refers to a firm’s ability to pursue new investment opportunities via debt issuance. The test hypotheses The first hypothesis states that a borrower with a higher percentage of balance sheet items measured at fair value is less likely to have a priority structure. The second hypothesis states that a borrower with a higher portion of balance sheet items measured at fair value likely has a debt structure that is more financially flexible. The third hypothesis states that the fair value of liabilities and the fair value of assets are equally relevant to debt structure decisions. Target population This study focuses on nonfinancial firms in North America that are subject to the mixed attribute accounting, which measures a certain percentage of assets and liabilities at fair value. Adopted methodology The main tests use multivariate analysis that includes both logistic regressions and OLS regressions. Additional tests include cross-sectional analyses and the Granger causality test. Analysis Using a sample constructed from Compustat North America and Capital IQ (6,220 firms and 36,487 firm-year observations), the main tests regress dependent variables, namely the priority structure measures and financial flexibility, on the exposure to fair value measurement. Findings Results show that fair value measurement reduces information asymmetry and has favorable effects on the debt structure. A high exposure to fair value measurement reduces the need for a priority structure. A high exposure to fair value measurement also enhances financial flexibility. Additional analyses reveal that the favorable effect mainly comes from assets measured at fair value. The effect becomes weaker with respect to liabilities measured at fair value.

Challenges and Prospects of Establishing Accounting Treatment Standards for Digital Currency

Digital Currency have emerged as a disruptive force in the financial world, challenging traditional accounting practices and regulatory frameworks. This study examines the challenges and prospects for establishing accounting standards for Digital Currency. Initially conceived as a secure medium of exchange, Digital Currency have evolved into assets that can be exchanged for goods or services. However, their dual role as currencies and commodities presents a classification dilemma. Current accounting standards primarily classify Digital Currency as intangible assets, but their rapid appreciation renders historical cost measurement ineffective. Adopting fair value measurement emerges as an optimal solution, but practical hurdles remain. Through insights from existing literature and analysis, this study optimizes accounting approaches for Digital Currency, addressing challenges such as asset valuation, regulatory inconsistencies, diverse investor perspectives, and legal uncertainties. Establishing standardized and transparent accounting practices tailored to Digital Currency is critical to ensuring transparency, consistency, and reliability in financial reporting.

The Influence of Company Fundamentals and Director Characteristic towards Fair Value Measurement in the Indonesian Banking Industry

Fair value is part of the International Financial Reporting Standards (IFRS) which attract attention of researchers due to its controversial issues. Studies investigating factors influencing opportunistic behaviour through fair value figures in developing countries are limited. This study aims to investigate the effect of company fundamental factors on fair value. This research applies multiple regression of banking companies listed on the Indonesia Stock Exchange from 2018 to 2022. The fundamental factors, as independent variables are return on equity (ROE), ratio of operating expense on operating income (OEOI), capital adequacy ratio (CAR) and the proportion of female directors. Meanwhile, the dependent variable is fair value through modelling calculation i.e. fair value level 3 inputs. This study found that only OEOI significant influence fair value level 3 inputs. Meanwhile, ROE, CAR, and the proportion of females in the board of directors does not significant influence on fair value level 3 inputs. The study implications Indonesian banking industries should prioritize fair value disclosure, especially at level 3, as it provides crucial information about a company's performance and condition, potentially enabling investors to evaluate its performance.

Fair value estimates for illiquid cryptocurrency

To address the need for reporting and disclosure of cryptocurrency holdings in compliance with the FASB guidance for the use of fair value measurements for cryptocurrency (FASB, 2023), this paper develops a modeling process for reporting entities to measure the market value of cryptocurrencies with limited or no observable transactions. In this valuation model, we consider the last observable market information with time decay, its comparable assets market index, and dynamic real-time market participants’ sentiment and attention. Notably, the application of exogenous variables allows us to maximize the observable inputs in measuring fair value, such as asset classification based on economic traits and market participants’ attention and sentiment measurement with online media textual analytics. We propose a valuation framework and construct a prediction model that can achieve a prediction accuracy of 87 % on target asset resurging prices.

Value Relevance of Fair Value Measurement on Investment Property: Malaysian Evidence

Objective - This research investigates the disclosure practices for fair value measurement of investment property and examines the value relevance of fair value information reported by Malaysian public listed companies. Methodology/Technique - The study focuses on annual reports from 2018 of companies listed on the Main Market of Bursa Malaysia, excluding firms in the financial and unit trust sectors. The sample includes 71 companies that reported fair value gains on investment property. Findings - Findings reveal that none of the companies used Level 1 inputs, 51% used Level 2 inputs, 39% used Level 3 inputs, and 10% used a combination of Level 2 and 3 inputs. The regression analysis indicates that fair value gains are not significantly related to stock returns, suggesting that Malaysian investors do not find this information useful. However, net income before fair value gains is significantly related to share returns, highlighting the importance of traditional earnings metrics. Novelty - This study contributes to the literature by providing empirical evidence from Malaysia, revealing a gap in the perceived usefulness of fair value disclosures and underscoring the continued relevance of traditional financial metrics for investors. Type of Paper: Empirical JEL Classification: M41, M49. Keywords: Fair Value Gain, Investment Property, Value Relevance, Disclosure Reference to this paper should be referred to as follows: Shaari, H. (2024). Value Relevance of Fair Value Measurement on Investment Property: Malaysian Evidence, Acc. Fin. Review, 9(1), 42 – 53. https://doi.org/10.35609/afr.2024.9.1(2)

Research on Fair Value Application and Financial Impact - Taking Zhongnan Construction Company as an Example

The history of economic and accounting development shows that the more the economy develops, the more important accounting is; the more the economy develops, the stronger the ability of accounting information to promote or hinder economic development. In the long history of accounting, measurement has always been the core of accounting. The choice of accounting methods focuses on the choice of measurement attributes, rather than the choice of measurement units. With the development of market economy and knowledge economy, the accounting information provided by historical cost accounting only involves past costs and ignores future values. It cannot reflect changes in the economic environment in a timely and complete manner, and has no connection with the economic decision-making process. The measurement of fair value can reflect the current and future changes in the economic environment in a timely and complete manner. In the more than ten years since it has been in line with the international accounting community, the issue of fair value has always been an urgent problem to be solved. Corresponding research on related issues, from theoretical review to the practical application of fair value measurement. At present, the control of fair value measurement by Chinese enterprises is still not stable enough, and how to effectively improve is still an in-depth question.

PSAK 68 MEASUREMENT OF FAIR VALUE IFRS CONVERGENCE Fair Value Concept

Abstract Purpose - This study aims to find out about the concept of fair value in PSAK 68: IFRS Convergence Fair Value Measurement, as a substitute for book value. The convergence of the application of new accounting standards is oriented towards the International Financial Reporting Standard (IFRS) issued by the International Accounting Standard Boards (IASB). In this new accounting standard, the concept of fair value is emphasized more than the concept of book value. This is what makes the difference and triggers this convergence to change the simpler book value model Design/methodology/approach - This study uses a descriptive qualitative method with a literature study approach on fair value measurement. Finding - The result of this study is the concept of fair value (fair value) that is currently considered to have an advantage over book value is a concept that is widely applied all over the world, as well as with accounting in Indonesia should be ready to apply the concepts of reasonable value in its accounting standards Originality – Paper Type – Research Paper

The Role of Applying IFRS.13 Fair Value Measurements in Improving the Quality of Accounting Information

The present research aims to study the role of the application of fair value measurements IFRS, 13 in accordance with IFRS in improving the quality of accounting information, and to demonstrate the impact of their application on the performance of economic entity in general, especially in relation to the parties associated with these economic entity. To achieve the research objective, a questionnaire form was determined and distributed for 30 practitioners of which 27 were valid for analysis , and used percentages, repetitions , calculation circles were used for the purpose of identifying the trends of the sample answers for each paragraph of the questionnaire, for each dimension and for each axis, as well as the use of standard deviations for the purpose of measuring the degree of dispersion of the values of the sample answers from the computational circles for each paragraph of the questionnaire, for each dimension and for each axis, and for the purpose of testing research hypotheses, the (T-Test ) used to compare the average of the answers with the hypothetical arithmetic mean of the answers, and simple linear regression to show the relationship between the search variables. The research found that there is a significant relationship between the fair value measurements of IFRS.13 and improve the quality of accounting information in Iraqi economic entity. The research recommended the need for the economic entity to conduct accounting work using the measurement based on the fair value of the appropriate information it provides and a degree of honest representation that meets the needs of current and prospective users of the financial statements of the economic entity.

On the Ethics of Fair Value Accounting: Distributive Effects, Distributive Injustice, and Implications for Social Peace

Fair value accounting is at the heart of arguably the world’s most prominent accounting standards, particularly US GAAP and IFRS. Fair value measurement has been the subject of intense debate. Among other things, it has been analyzed from an ethical perspective. However, this discussion has mainly been limited to the judgment involved in fair value measurement and the ethics of fair value in its ability to provide decision-useful information to interested parties. This study pushes the boundaries by adding a new dimension to the discussion of the ethics of fair value accounting by examining its ethics from a more systemic and societal perspective. Drawing on Austrian business cycle theory, it argues that fair value accounting facilitates certain distributive effects in inflationary monetary environments, thereby contributing to distributive injustice and potentially to social discord. In this respect, fair value accounting—in contrast to historical cost accounting—should not be considered fair or just, but unethical instead.

Valuation Specialists and Value Relevance of Fair Value Measurements: Evidence from International Banks

ABSTRACT This study examines the impact of engaging valuation specialists on the value relevance of Level 3 fair value measurements (FVMs) within the auditing process. Through an analysis of a sample of international commercial banks over the period from 2016 to 2019, this study reveals that both Level 1 and Level 2 FVMs are generally value relevant, regardless of the involvement of valuation specialists in the auditing process. However, the value relevance of Level 3 FVMs appears to be contingent upon the auditor’s utilization of valuation specialists during the audit of these measurements. The findings of this study indicate that, notwithstanding the concerns highlighted in prior research, investors tend to hold the conviction that valuation specialists can make a substantive and positive impact on the auditing process, thereby enhancing the value relevance of Level 3 FVMs. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G21; M41; M42.

Economic impacts of regulatory decisions on reit dividend distribution

Real estate investment trusts (REITs) have recently gained prominence in the capital market. From an accounting point of view, the Maxi Renda Trust (MXRF11) has been the subject of recent discussions and contradictory decisions within the scope of the Brazilian Securities and Exchange Commission (CVM) regarding the calculation basis for the dividend distribution. In this context, we sought to investigate the economic impacts of fair value measurement under the framework of CVM’s decisions in the Maxi Renda Trust and to verify how the theory of regulation can explain regulatory body decisions. The trust income for the period from 2015 to 2021 was restated based on the cash basis, used by the trust, and the accrual method, determined by the CVM, in order to identify differences in the amount of income that would be distributed with the change in the methodology issued by the regulatory agency. Also, an analysis of CVM’s decisions and the trust’s administrator’s arguments was also conducted, to identify elements that could be correlated with the regulatory body’s performance under the aspects of the theory of regulation. As a result, it was demonstrated that there is an economic impact on the minimum income calculated to be distributed by the trust between the two methodologies (cash and accrual), with smaller amounts for distribution considering the accrual basis, which exclude revenues and expenses that do not transit through cash, as is the case of fair value measurement. CVM’s decisions may have resonance in the public interest theory so that the regulatory body’s performance was aimed at protecting the investor, even though it may have suffered pressures exerted by interest groups or even captured by the regulated parties since it changed the initial understanding of the case. Besides the theoretical contribution, with the possibility of expanding studies on the applicability of accounting standards related to the measurement of fair value in investment trusts and their economic impacts, the study applied to the Maxi Renda Trust provides a better understanding of the topic to subsidize investors regarding decision making on investments in this type of trust.

The Application of Fair Value Measurement in Investment Real Estate

Investment real estate has the characteristics of large investment scale and slow monetization speed. Many enterprises usually adopt a cost measurement model. With the establishment of China's market economy system, the difference between the construction price and sale price of investment real estate under the cost measurement model is relatively large, far greater than the fair value and sale price of investment real estate, which cannot adapt to the development of modern real estate industry. The use of fair value model has improved the timeliness and quality of accounting information, and objectively reflects the market value of real estate enterprises. This article focuses on fair value measurement and analyzes the advantages and disadvantages of this model in the application of investment real estate. At the same time, corresponding suggestions are proposed for the problems that arise during the use process.

A Study of the Effect of Fair Value Measurement on the Financial Performances of Selected NSE-Listed Companies

In recent years, fair value measurement has become an important concept in accounting terminology. A significant development has been observed when the measurement of assets and liabilities has been made through fair value while preparing the financial statement of an entity. The importance of which is entirely related to transparency, reliability, and comparability of the statements of affairs of business entities. The question of transparency in accounting arose as the number of stakeholders in business entities increased. In India, fair value measurement is based on Ind AS 113, and it has had an enormous impact on the financial performances of companies listed on the NSE. This paper dwells upon the fact regarding the impact of fair value measurement on financial performances of the top 12 NSE-listed companies of two sectors, namely, automobile and metal, by means of the Fair Value Index (FVI) and by content analysis technique to show the trend through the ratio of these two sectors and whether these companies’ financial position has been improving by implementing FVM in their reporting. The data has been collected from secondary sources, and the research is basically an exploratory in nature. The results show that none of the companies under these two sectors perform very poorly after disclosures under FVM; rather, these companies are trying to improve their financial recording by implementing proper disclosures and nomenclatures.

Fair Value Measurement of Farmed Fish

Fair Value Measurement of Farmed Fish

Innovations in fixed asset accounting

Subject. Fixed assets provide for various types of activities and make up a significant part of the assets of corporations. The growth and improvement of fixed assets characterise the quantitative and qualitative development of a corporation's technical equipment capacity and ensure its sustainable operation. Objectives. The requirements for the presentation and disclosure of accounting information are changing due to the challenges of the global and market economy. Therefore, it is important to consider issues related to the recognition, classification, evaluation, and presentation of economic activities related to the flow of fixed assets. Methodology. The problems related to fixed asset accounting have been studied by many economists from Russia and abroad. A significant number of theoretical works that provoke discussions indicate the need for new approaches to the development of accounting policies and methods of fixed asset accounting in particular. Since corporations use the provisions of the Federal Accounting Standard No. 6/2020 “Fixed Assets”, FSBU 26/2026 “Capital Investments”, and international accounting standards and develop independently their own accounting methods, the accounting policy should be developed with the participation of specialists and people responsible for the presentation and disclosure of information. Results and discussion. Recognition of a fixed asset item in accounting requires the expertise of specialists who can confirm that this item can be used in the ordinary activities of the company for a period exceeding 12 months and that it can deliver economic benefits. Groups of specialists and documents developed by a corporation to outline the conditions for the recognition of fixed asset items are established by bylaws. When recognising a fixed asset item, it is particularly important to determine inventory items and to group them. This is performed by the units of the organisation that ensure the ability of this item to bring economic benefits. If the items meet the conditions for the recognition of fixed asset items, the accountant determines the historical cost of the item. The application of the revalued cost of fixed asset items in accounting, based on the International Financial Reporting Standards (IFRS) 13 “Fair Value Measurement” and (IAS) 36 “Impairment of Assets”, ensures the reliability of financial statements. In case of assets that meet the recognition requirements, but whose value is below the limit established by a corporation, the control of the asset's availability and flow is also regulated by a bylaw. Conclusions. The results of the study can be used by corporations to develop accounting policies related to the systematisation and disclosure of information on fixed assets.

Accounting Measurement and Profitability: Comparative Analysis between Fair Value Regime and Historical Cost Regime

This study examined the effect of accounting measurement on profitability of selected consumer goods companies in Nigeria during historical cost regime and fair value regime. Accounting measurement was measured with revenue, cost of sales and operating cost while profitability was measured with net profit margin and return on equity. The data were generated from the annual reports of ten (10) selected consumer goods companies listed on the Nigeria stock exchange from 2008-2010 (representing historical cost regimes) and 2019-2021 (representing fair value regimes). The consumer goods companies used for this study included Dangote Sugar, Nigeria Breweries, Nestle, Guinness, Cadbury, Unilever, Nascon, Pz Cursors, Floor Mill and Honeywell.
 Hausman test was conducted and the result led to the use of fixed effect estimation technique for testing the hypotheses. Regression result showed that cost of sale and operating cost have negative effect on net profit margin both on both historical cost and fair value regime while revenue has significant positive effect on net profit margin both on historical cost and fair value regime. Furthermore, cost of sales and operating cost have negative significant effect on return on equity both on historical cost and fair value while revenue has significant positive effect on return on equity both on historical cost and fair value.
 The study concluded that both fair value and historical cost measurement have positive significant effect on net profit margin and return on equity. This implies that profitability is not a function of either fair value or historical cost accounting measurement. The study recommended that fair value accounting basis should be adopted in order to ensure a more realistic measure of profitability than under historical cost basis.

Peran Tata Kelola Perusahaan Dalam Meningkatkan Relevansi Nilai Pengukuran Nilai Wajar Aset Nonkeuangan

Accounting information is one of many information that is used in making decisions by investors. Accounting information has value relevance when the information raises investor reactions, meaning that the information is used for decision-making that affects stock prices. This study aimed to examine the value relevance of earnings, book value of equity, and fair value measurement of non-financial assets, along with the role of corporate governance in increasing the value relevance of that information. This study used 18 companies listed on the LQ45 index on the Indonesia Stock Exchange (IDX) during 2018-2022. Moderated Regression Analysis (MRA) was used as an analytical tool to test the relationship of research variables. The results showed that earnings, book value of equity, and fair value measurement of nonfinancial assets had value relevance. Corporate governance was found to play a role in improving the value relevance of earnings and the fair value measurement of non-financial assets. The existence of corporate governance was able to reduce agency conflicts and provide assurance that information has been presented fairly to investors thereby increasing value relevance.