Fair Value Method Research Articles

Evaluating the Commensurate with Income Standard

ABSTRACT This study analyzes a model in which intellectual property (IP) that generates uncertain future cash flows is sold by a U.S. parent to a foreign subsidiary. The parent has private, imperfect information regarding the value of the IP. The study compares the firm’s expected tax and penalty payments under the commensurate with income (CWI) standard to the payments under the fair value method, in which the transfer price is the expected value of the IP using all the facts publicly available after the value is realized. It compares payments under both methods to the payments using the fair private price, which is the value of the IP on the date of sale given the parent’s private information. Expected tax and penalty payments using the fair private price are strictly less than expected payments under the CWI standard and are strictly greater than expected payments under the fair value method. JEL Classifications: H25; H26; H32.

DAMPAK PENGGUNAAN METODE NILAI WAJAR TERHADAP NILAI PERUSAHAAN

The use of fair value metode is something that affects the value of the company. This study aims to test the impact of using the fair value method on company value. This type of research is qualitative research. This research uses the literature review method. The results of the study using the literature study data analysis method, obtained the result that fair value is not always stable and can be fully trusted, especially when the market is illiquid or under pressure. So, reasonable value can affect a company's market value, but it doesn't necessarily directly affect its intrinsic value or actual value. This is because fair value is based on the market's valuation of an asset or company at a given time.

PERAN KOMITE AUDIT DALAM HUBUNGAN ANTARA METODE NILAI WAJAR DENGAN BIAYA AUDIT: STUDI KASUS DI ASEAN

This research discusses the impact of the fair value method on fixed assets, audit fees, and audit committees in ASEAN. The samples of the research are 277 manufacturing companies listed in the Indonesia Stock Exchange, Malaysia Stock Exchange, Singapore Stock Exchange, Philippine Stock Exchange, and Thailand Stock Exchange from 2014 to 2016. The results of the study found that companies that use the fair value method through a revaluation model to measure their fixed assets have higher audit fees than those that use the historical cost method. In addition, there is a moderation effect of audit committee competencies on the relation of fair value method to audit fee. The findings prove that the accounting and financial competencies of the audit committees reduce audit fees imposed on companies using the fair value method for fixed assets.

Positive Accounting Theory In Predicting Accounting Choice (An Overview Of Adopted IFRS In PSAK 16 Research On The Audited Financial Statements)

Background of this study is the implementation of IFRS di Indonesia which is implemented since 2008. One of PSAK that have been adopted was PSAK 16. This PSAK was permited entity to choose one of the method of fair value or historical cost to measure the property, plant and equipment. The purpose of this study is to test if The Positive Accounting Theory can predict choices of fair value method or historical cost method . This study observed 52 financial statement of company that listed on BEI at 2009. Dependent variable that used in this study was firm size, institutional stock ownership, leverage, and industrial membership. Result of the study shows that the fourth variable wasn’t have significant result in explaining The PAT predicting accounting choice of those methods of property, plant and equipment measurement

HİSSE SENETLERİNDE TMS VE TFRS UYARINCA GERÇEĞE UYGUN DEĞER YÖNTEMİNİN MUHASEBELEŞTİRİLMESİ, FİNANSAL TABLOLAR İLE RİSK ÜZERİNDEKİ ETKİSİ (MUHASEBE UYGULAMASIYLA BİR DEĞERLENDİRME)

Historical“cost is“determined as the initial value of investment securities and is recognized in the ledgers. After that, the value of the shares changes according to the market price. The historical cost of shares is not acceptable in the future. The historical cost method does not reflect the volatility of the security value to the financial statements and cannot provide the necessary information to the investors. The rise in stock prices in the stock market has a repercussion in terms of results.For this reason, historical cost does not reflect the market value of the stock. The stock that does not reflect its real value may increase in the market. However, with this increase, the hidden value actually causes it to remain hidden in the increased profits. These increased and hidden profits will not be included in the income statement.Using fair values instead of historical costs helps to more accurately and better predict the future performance of the company. It helps the business reduce risk financing. It has shown that the application of fair value in financial reporting has an impact on the ability of businesses to predict future earnings. With this article, the effect of increasing/decreasing the current values of financial instruments in the financial statements of the enterprises by the fair value method at a reasonable level has been evaluated with accounting practices.

Dylematy ujęcia ujemnej wartości godziwej aktywów netto zorganizowanej części przedsiębiorstwa przy połączeniu jednostek według polskich przepisów rachunkowości

Objective : The Polish Accounting Act and other Polish GAAP does not define business as a business combination. This act enables the use of International Financial Reporting Standards but National Accounting Standard no. 4 provides some concepts that can be applied to define what a business is. The first aim of this paper is to apply this standard to precisely explain the term “business” in sense of Polish GAAP. Because of fair value assessment of the business in combination, such a business can have a negative income value, resulting in a negative fair value of net assets. The second aim of the article is to characterise Polish GAAP in the context of zero value of the acquiree’s assets at initial recognition. Research Design & Methods : The legal acts of Polish GAAP were read and analysed. Findings : On the basis of NAS 4, a business can be defined as combined assets with liabilities and reserves if they are assigned to assets and generate economic benefits as net cash flows from operating activities. The article further shows that Polish GAAP does not include the possibility of recognising negative fair value of business net assets even if the restructuring the assets should be revaluated. In Polish GAAP, the impairment of initial value of net assets and, at most, reverse of the impairment loss is assumed. Implications / Recommendations : For the proper accounting allocation of a business combination, the Polish Accounting Act must be completed. This would include providing a definition of the business as recognition method of negative fair value of net assets, resulting from the negative income value of those assets. Contribution : The paper contributes to Polish accounting some concepts of business on the basis of NAS 4. It also shows contradictions in the measuring of fair value of business that is valued at negative income in business combination.

RELEVANCE OF FAIR VALUE IN BIOLOGICAL ASSETS: AN EXPERIMENTAL ANALYSIS ON MARKET PERCEPTION VERSUS THE ACADEMIC PERCEPTION

Criticisms have been made from both the academic and business environments about the importance and usage of fair value (FV), especially for assets related to agricultural products without an active trading market. For analyzing what is the relevance of the FV method to biological assets for users, an experiment was made with 217 market professionals attending the Executive MBA course and 155 undergraduate students in accounting, from the perspective of the Counterfactual Thinking Theory. The following stimuli were considered if: (i) the result (losses or gains) arising from the evaluation at FV, (ii) the type of biological asset (with or without liquidity), and (iii) the managerial decision (held the asset to the maturity date or make it available for sale) interfere in the judgment of the relevance of FV in biological assets. The findings indicate that the use of FV is relevant for the measurement of biological assets in opposition to the historical cost. Type of asset (eucalyptus as without an active market) and managerial decision (make it available for sale) led to different perceptions for academicians that considered more relevant the use of FV. For market professionals, results also indicate the type of asset (eucalyptus) affected their FV judgment as an appropriate metric for value asset. Our findings also can be concluded that the perception of the relevance of the FV method is greater to evaluate biological assets (bovines and forests) than the reliability in the process and the outcomes.

A comparative analysis of the use of fair value and alternative valuation methods in IFRS

Subject. This article analyzes the various types of value used in IFRS to assess assets and liabilities. Objectives. The article aims to conduct a comparative analysis of the types of value used in IFRS when assessing assets and liabilities, and identify the features of the use of fair value as a type of value, considering the use of certain levels of fair value and restrictions on their use. Methods. For the study, we used the systems analysis, comparative study method, information structuring, data grouping, deduction, and other methods of scientific research. Results. The article summarizes the advantages and disadvantages of each of the valuation methods described in the Conceptual Framework for Financial Reporting – IFRS. It systematizes the standards that use certain types of value, and analyzes the features of the use of fair value. The article also identifies factors that affect the ability to measure a higher level of fair value. Conclusions. Fair value is one of the most used valuation methods in international accounting practices. However, the use of fair value in estimating the value of reporting items is limited due to the complexity and high cost of its qualitative valuation. This makes companies use alternative valuation methods.

PENGARUH PILIHAN METODE NILAI WAJAR PROPERTI INVESTASI TERHADAP NILAI PERUSAHAAN REAL ESTATE

IAS 40 (adopted in PSAK 13, 2012) about investment properties allowing companies to choose the method of measuring their investment properties, namely the cost method and the fair value method. Side that oppose fair value method argue that fair value is unreliable and costly. The purpose of this study, therefore, is to examine the relevance of the fair value accounting choice method and determinants that affect of fair value accounting choice method for investment property. This research is using secondary data observation technique which acquired from annual financial reports for real estate, manufacturing, and trading sector companies listed on the Indonesia Stock Exchange during the 2012-2016 period. By using judgment sampling method, the research sample tested were 48 companies (19 real estate companies, 15 manufacturing companies, and 14 trading companies). The results of this research shows that fair value accounting choice method has a positive significant on firm value. In that case shows that fair value accounting choice have a value relevance so it can help investor to make a investment decision. For determinants of fair value accounting choice, that firm size variables has significant positive and leverage significant negatively with determinants of fair value accounting choice while big four has no effect on determinants of fair value accounting choice.
 Keywords:
 Value relevance, Investment property, Firm size, Leverage, Big four.

Factors Affecting The Selection of Fair Value Methods for Investment Property

The purpose of this study is to analyze the effect of leverage, profitability, information asymmetry, and the gain on the fair value difference on the selection of the fair value method for investment property by PSAK 13. The population of this study is all companies listed on the Indonesia Stock Exchange for the period 2016-2018. The sample selected by purposive sampling amounted to 53 companies. The data processing technique uses the STATA 14.2 program. Logistic regression is used to analyze the hypothesis. Findings. The results of this study indicate that leverage, profitability, and information asymmetry do not affect the selection of the fair value method for an investment property. However, the gain on fair value difference negatively affects the choice of the fair value method for an investment property.

APPLICATION OF FAIR VALUE IN THE ACCOUNTING, CONTROL AND REPORTING FOR UKRAINE IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

One of the key and most controversial accounting and control issues is the measurement of the elements of financial statements. The question of determining the fair value of assets and liabilities is one of the most relevant in modern accounting practice. This type of measurement is currently the subject of heated debate in the accounting community. International Financial Reporting Standards proceed from the priority of the interests of users of financial statements and are essentially aimed at providing them with the most relevant and useful information. This message determines the logic of building standards. IFRS 13 «Fair Value Measurement» considers fair value measurements in a broad sense, concentrating on the definition of fair value and the principles for measuring it. The main problem arising in the process of applying the fair value estimate is the lack of a methodology for its calculation. The article reveals the factors that influence the process of determination fair value. An algorithm in the selection of fair value valuation methods for management accounting is proposed, which allows quickly and timely determine the real value of accounting items and financial reporting elements, as well as a hierarchy of sources of fair value, which is represented by three levels. Level I is distinguished by the lowest degree of subjectivity in the measurement of assets and liabilities, Level II is characterized by a greater degree of subjectivity in the measurement of assets and liabilities, Level III is associated with the greatest degree of subjectivity in the measurement of assets and liabilities. The choice and proper use of the fair value method requires a high level of qualification in the field of appraisal, in-depth knowledge of the asset being valued, a liability or business, as well as the wide application of professional judgment. Historical cost and fair value provide two different kinds of information, which are both useful to investors. A dual measurement and reporting model could be more effective for assessing the success of an investment. Financial statements are more reliable, the more adequately it reflects the financial situation and financial results of the company. It is very important in the preparation of financial statements to apply various methods of measurement of assets and liabilities that are relevant to the company at the moment. Both historical cost and fair value should be provided as only together they can deliver complete and useful information to investors.

THE EFFECT OF FAIR VALUE ON FINANCIAL RATIOS: AN EXAMPLE OF INVESTMENT PROPERTIES

Bu çalışmada, yatırım amaçlı gayrimenkullerin değerlemesinde gerçeğe uygun değer yönteminin kullanımının finansal oranlar üzerine etkisine dair delil sağlanması amaçlanmıştır. Araştırma, BIST Pay Piyasası’na kayıtlı finansal kurumlar dışında kalan ve yatırım amaçlı gayrimenkullere sahip 34 şirket üzerinde frekans analizi kullanılarak yapılmıştır. Bu çalışmada, yatırım amaçlı gayrimenkullerin değerlemesinde gerçeğe uygun değer yönteminin kullanımının maliyet yönteminin kullanıldığı duruma göre araştırma kapsamındaki şirketlerin faaliyet oranları ve borsa performans oranları üzerindeki etkisinin olumsuz yönde olduğu; finansal yapı oranları ve kârlılık oranları üzerindeki etkisinin ise orana göre değişebildiği yani olumlu ya da olumsuz yönde olabildiği sonucuna ulaşılmıştır.

Fair value of standing timber in the context of IAS 41 implementation: a case study with <i>Pinus radiata</i>

Upon seeing the forest valuation in a knowledge-based framework and, although there are studies that indicate how the Chilean forestry companies evaluate their forestry assets, existing information can be inferred only on large and medium-sized enterprises; in the case of small enterprises there are no tangible data to know what the method of valuation of its assets. To provide a critical assessment of the valuation methods commonly used for the valuation of forests, this paper has two objectives. First, to evaluate compatibility of valuation criteria based on the fair value method of the biological assets of forest companies after adopting the International Financial Reporting System (IFRS), and second, to establish a method for the proper use of IAS 41 (International Accounting Standard) in the forestry sector through case studies in Chile. Fair value was determined according to IAS 41, in an immature plantation (eight years) established with Pinus radiata , using the “cost approach” and the “income approach”. The main findings suggest that the estimation of fair value using the “income approach” valuation method becomes more precise the younger the stand, i.e. calculating fair value based on the net present value of the stand, promises more accuracy. Nonetheless, the use of growth and yield simulation software for stands of exotic species, impede widespread use of this method. Results indicate the need to harmonize methodological criteria to measure fair value in crops of forest species.

Acceptability of Fair Value Accounting In Indian Corporate Sector – An Opinion Study

Ministry of Corporate Affairs (MCA), Govt. of India, by its notification dated 16.02.2015, in exercise of the powers conferred by section 133 read with section 469 of the Companies Act, 2013 in consultation with the NACAS, introduced a new accounting standard rules which has converged Indian Accounting Standards in the line of IFRSs (i.e. Ind ASs). MCA has notified 39 Ind. ASs till date including a separate Ind AS on Fair Value Measurement (Ind AS 113). Companies (Indian Accounting Standards) Rules, 2015 and its subsequent amendments stipulate adoption and applicability of Ind ASs in Indian corporate financial reporting in a phased manner mandatorily from the financial year 2016-17. Therefore, in India, financial statements for the year ended 31st March, 2017 are the first that some specified companies have already prepared adopting Ind ASs as well as applying fair value measurement with a transition date of 1st April, 2015. The undertaken research study is a humble endeavour to judge opinions of Indian academicians and professionals in the field of accounting regarding acceptability and impact of application of fair value method on Indian corporate financial reporting. For the purpose, we conducted an opinion study through questionnaire survey with the Indian academicians and professionals. In the opinion survey, it has been observed that most of the respondents advocate for presentation of assets and liabilities in the financial statements at fair value, instead of historical cost.

FACTORS IN DETERMINING THE PREFERENCE OF FAIR VALUE METHOD OF INVESTMENT PROPERTY

Financial Accounting Standard Statement in Indonesia is adopted from the IFRS by the IASB. IFRS applies those standards regarding the assessment of investment property as regulated in PSAK number 13. This research aims to determine the effect of leverage, firm size, asymmetry information, the difference in fair value gains, and share ownership on the selection of fair value investment property methods. This research is quantitative research with purposive sampling technique. The research was conducted on 69 companies listed on the Indonesia Stock Exchange in 2014-2017 with a total of 276 samples. The data analysis technique in this research used logistic regression analysis. The results indicate that firm size and asymmetry information influence the selection of the fair value method of investment property. The leverage, the difference in fair value profits, and share ownership do not affect. Based on the results of the research, there are still many firms that does not apply the fair value method because they prefer a more conservative accounting method. Additional costs regard to revaluation is one of the considerable factors why the firm resist to use the fair value method.

The effect of diffrerences of TFRS-9 and TMS-39 assessment methods on net working capital: implementation on companies subject to sustainability index

Purpose- Turkey Financial Reporting Standard-9 Financial Instruments Standard of (IFRS-9) 01.01.2018 Date of the ring was mandatory for the reporting of public companies. Turkey Accounting Standard-39 Recognition and Measurement Standard (TAS-39) brought a number of new regulations have emerged. Changes in the valuation of financial instruments are considered. Stata 14.1 Panel analysis was used to analyze the fair value of financial instruments and their effect on net working capital in firms subject to sustainability index. Methodology- This study was conducted in companies subject to the Sustainability Index between 2005-2018 using panel analysis in the Stata 14.1 program. Findings- According to the results reached, it has been determined that the increase in fair valuation in financial instruments has affected the net working capital. It was also determined that it caused an increase in the financial debt variable that we put as a dummy variable. Conclusion- The fair value method is important in evaluating financial instruments so that companies can effectively manage their asset and resource structures. As long as the companies can pay their short term debts and manage their short term assets correctly, it is thought that they can play a role in the market and compete with other companies. At the same time, the meaningful relationship between firms ability to pay their debts and their fair value is an expected result

KEMUNGKINAN PEMILIHAN METODE NILAI WAJAR BAGI PERUSAHAAN YANG MELAPORKAN PROPERTI INVESTASI

This study aims to examine the factors that affect the likelihood companies choose the method of fair value for investment properties. Factors in this research consisted of debt levels, the size of the company, information asymmetry and companies in the property industry (control variables). The population of this research is company publicly traded listed on the Indonesian Stock Exchange 2010-2015 period. The sample selection using purposive sampling, the type of data used is secondary data obtained from the official website of the Stock Exchange. The hypothesis tested using a binomial logit regression models. The results of this study indicate that the level of debt significantly influence the possibility of the selection method for the fair value of investment property. This suggests that the high or low levels of debt may affect the selection of the fair value method. The size of the company, information asymmetry and companies in the property industry did not significantly affect the possibility of the selection method for the fair value of investment property. This suggests that the high or low of company size, and information asymmetry in the property industry has no impact on the possibility of the selection method for the fair value of investment property

Pengaruh Penerapan IFRS (PSAK 50/55) terhadap Price to Book Value Saham-Saham Perbankan di Indonesia

Implementation of IFRS (PSAK 50/55, accounting standards for financial instruments) in the Indonesian banking industry, has changed the assets valuation from historical cost to fair value method, that increases the value of banks' assets. The increase in asset value due to accounting changes, without any increase in economic value banks' assets, may result in a decrease in Price to Book Value (PBV) of banks' stock in Indonesia. This research shows that the implementation of IFRS has caused a decreasing of PBV of banks' stocks in Indonesia, after controlling Return on Equity (ROE), Leverage and Assets Size, the three factors that are previously known for effecting the PBV. Meanwhile, for manufacturing companies, the implementation of IFRS is presumed not to cause a decrease of PBV, because manufacturing companies have a very small portion of financial assets compared to fixed assets. The implementation of IFRS on fixed assets (PSAK 16) still allows manufacturing companies to choose between historical cost and revaluation method in recognizing their fixed assets. This research shows that the implementation of IFRS does not cause decreasing in PBV of manufacturing companies' stock, because many manufacturing companies may still use the previously used historical cost method, instead of moving to the revaluation method.

The Effect of Fair Value Method Adoption: Evidence from Real Estate Firms in the EU

The adoption of the International Accounting Standard 40 (IAS 40) in 2005 by public companies in the European Union required firms to disclose the fair value of their investment properties. We study whether this increase in the transparency in financial reporting reduces information asymmetry and leads to higher pricing efficiency and improved liquidity. We investigate this question in the context of the real estate industry, which due to its unique structure stands to be affected the most by the adoption of the fair value method. We observe that post regulation the coefficients of variation of trading volume and daily turnover decreased significantly, while turnover ratio increased significantly. In addition, these effects are stronger for larger firms. We further note that although post-IAS 40 asymmetric information decreases and liquidity increases, the disclosure of fair value does not lead to lower NAV deviation. Furthermore, our results suggest that fair value disclosure exacerbates NAV deviation and illiquidity during the crisis period.

A Comparative Analysis of Inflation-Adjusted and Historical Cost Accounting Information: Implications for the Value Relevance of Corporate Reports

Purpose of the article: This study investigates the effect of historical cost accounting on the reported profit of a company, with an evaluation of current cost accounting as an alternative reporting method in a high-inflationary and volatile economy as experienced in Nigeria. Using secondary data gleaned from the annual reports and accounts of ten (10) manufacturing companies quoted in the industrial sector of consumer goods of the Nigerian Stock Exchange from 1996–2016. Methodology/methods: To test the formulated hypotheses, a multiple regression model was formulated comprising the depreciation charge, taxes and dividend as the independent variables while reported profits both at historical and current cost of the firm served as the dependent variables. The Ordinary Least Square (OLS) estimation technique was employed to ascertain the inter-relationships between the variables. Scientific aim: This research is aimed at empirically investigating, by means of available statistics, the effect of historical cost accounting on the reported profit of a company during period of inflation. Findings: The study revealed that both historical cost and current cost accounting have significant effect on reported profit, as an increase in the depreciation charge, tax bills and dividends declared by firms will occasion a decrease in the reported profit. Conclusions: It is recommended that companies should prepare their financial reports using both historical cost and fair value (current cost) methods simultaneously, as this will allow the companies to ascertain the true financial position of their companies before declaring dividends and other benefits.