Fair value accounting from the users’ perspective : an experiment on how financial analysts rely on fair value estimates in their decisions

Purpose: The current paper aims to understand whether fair value accounting (FVA) affects analysts’ loan approval decisions and default risk judgments. Design/methodology/approach: This study focusses on three issues: unrealized gain or loss resulting from FV measurement recognized in other comprehensive income (OCI), recognition of assets at FV or historical cost and the disclosure or non-disclosure of the FV of collateral assets. It uses an experiment carried out with a sample of 29 CFA analysts. Findings: The results show that all three issues have a significant effect on analysts’ judgment and decision-making in processing FV estimates. Originality/value: The paper extends knowledge on how financial analysts perceive FV estimates and disclosure and may help the accounting standard boards assess the challenges facing analysts when they apply professional judgments in interpreting FV measurements and disclosures. Moreover, it offers fresh views to the debate on the decision usefulness of FVA, particularly relevant in the post-implementation review of IFRS 13.