This study investigates the effect on nonprofessional investors' judgements and decisions of discretionary measurement choices. Using a paper-and-pencil experience, we collect and analyze information regarding investment amounts as well as past and future financial performance judgements of...

This study aims to fulfil a gap in the literature, delivering a road map to understand the course and nature of the fair value accounting literature, further showing how the 2008-2009 financial crisis affected it. Bibliometric methods analyze 377 documents retrieved from the Web of Science and...

Prior studies find evidence that opportunistic reporting occurs in settings where fair value measurement is used. However, such research cannot determine whether the source of the opportunistic reporting is the estimate of fair value itself. Using detailed insurer investment holdings...

Investors demand conditional conservatism to restrict managers' ability to opportunistically exploit unverifiable accounting estimates. The fair value estimation process is subject to verifiability concerns when market prices are unavailable, and thus susceptible to managerial discretion. We...

Purpose: This paper aims to examine whether commercial banks manage earnings through their use of Level 3 valuation under The Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements. To achieve this goal, we investigate the association between banks' performance...

Using a novel hand-collected dataset of business combination disclosures, we investigate whether and how fair-value adjustments (FVAs) arising from mergers and acquisitions facilitate debt financing. FVAs are the difference between the fair value and the book value of the target's net assets. We...

I examine the effects of fair value reporting of derivatives, in accordance with SFAS No. 133, on corporate risk management policies and firm value. Prior studies predict that effective risk management through derivatives use reduces demand for liquidity (cash, credit lines) and increases debt...

Beginning in 2010, mandated Financial Accounting Standards No. 166 and 167 (SFAS 166/167) changed the consolidation rules of securitization entities and required more information about their securitization activities. I find that securitizing banks experienced a decrease in information asymmetry...

When analysing the GFC and other crisis, it is important to identify the root cause(s), trigger(s) and amplifier(s). Crisis experience suggests that there is almost always a build-up period facilitated by one or more root causes. A set of root causes and amplifiers are needed for a market...

This paper examines whether and how the level of exposure to fair value accounting moderates the changes in the value relevance of equity book value and net income during a crisis period. Using a sample of European listed financial firms over 2005-2011, our analysis confirms prior literature...

In 2001, SFAS 141 (ASC 805) required that identifiable assets and liabilities acquired in a business combination be initially recorded at fair value rather than pre-acquisition book value. The FASB argued that fair value measurement would provide more decision-useful information about future...

We examine whether auditors effectively incorporate cues indicating increased risk into their evaluation of fair value estimates. Consistent with concerns from PCAOB inspections, more than one-third of fair value estimates in our security-level dataset differ from the true fair value by an...

Purpose: This paper argues that the accounting standards' requirement for the valuation of pension scheme liabilities, potentially produces an artificial result which is at odds with the “faithful representation” and “relevance” objectives of these standards.Design/methodology/approach:...

The purpose of this paper is to compare the cyclical behavior of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Prot and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is less...

The purpose of this paper is to compare the cyclical behavior of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Profit and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is...

The study evaluated the effect of fair value reporting on financial profitability and firm value with focus on deposit money banks listed on the Nigerian Stock Exchange Using a sample of 13 banks quoted on the Exchange, the study employed secondary data gathered from published annual reports of...

Bank capital requirements are based on a mix of market values and book values. We investigate the effects of a policy change that ties regulatory capital to the market value of the "available-for-sale" investment securities portfolio for some banking organizations. Our analysis is based on...

Inadequate testing of fair value accounting estimates, including goodwill, is often cited as an audit deficiency in PCAOB inspection reports, and, in some cases, these deficiencies have led to enforcement actions against the auditor. As a result of these issues, the PCAOB recently proposed a new...

The article examines the impact of the reclassification of IAS 39 on income smoothing using loan loss provisions among European banks. The author predicts that the strict recognition and re-classification requirements of IAS 139 reduced banks' ability to smooth income using bank securities and...

This chapter discusses the causes and effects of adopting fair value accounting in the European Union by using a broader perspective that considers accounting within its wider socio-economic context.Financial reporting is not a neutral, mechanical and objective process that simply measures the...

The purpose of this paper is to compare the cyclical behavior of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Profit and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is...

If supranational public and private actors establish rules and standards, then it is of great concern whether those rules and standards have democratic legitimacy. The literature offers different measures to overcome these legitimacy concerns, such as the active participation by relevant...

PCAOB inspections repeatedly indicate deficiencies in audits of FV estimates, resulting in efforts by regulators to improve the related guidance and auditing standards (PCAOB 2017a). Nevertheless, regulators cannot fully resolve the complexity and inherent subjectivity in auditing fair value...

Recent increases in the occurrence and magnitude of goodwill impairment charges highlight the increasing importance of the role of the auditor in goodwill accounting. This study examines the association between disclosures about the fair value measurement of goodwill and audit fees. We find that...

Standard setters contend fair value accounting yields the most relevant measurement for financial instruments. We examine this claim by comparing the value relevance of banks' financial statements under fair value accounting with that under current GAAP, which is largely based on historical...

Amendment of IAS 39 by the IASB in 2008 provided an option to reclassify investments from fair value to historical cost. Whereas this option was available to all firms, it was particularly relevant to banks. We predict that “too important to fail” (TITF) banks took less advantage of this...

Prudential regulation of financial institutions relies on asset values measured based on accounting standards. This paper examines how this regulation affects financial institutions' incentives to use Level 2 versus Level 3 fair value reporting and how their endogenous choice affects systemic...

We analyze a choice that parent firms face under IFRS: whether to account a business combination under a common control (BCUCC) at fair value or at the historical cost, to provide evidence that firms would use fair value when they believe it would help them issuing public debt. A BCUCC is a...

We examine whether fair value accounting applied to goodwill impairment leads to unintended consequences. Under the fair-value-based goodwill impairment test, a firm's market value is often used as an important reference point for determining whether goodwill is impaired. A below-one...

Purpose – This paper aims to discuss fair value accounting and its usefulness to financial statement users. The European Commission has recently endorsed IFRS 13 on fair value measurement and is considering the endorsement of IFRS 9, which extends the use of fair value for financial...

This paper consists in a field-test of IFRS 13, Fair Value Measurement, on private equities, whose fair value assessment is based on valuation techniques. Its aim is that of offering empirical evidence on the potential economic effects of the application of such a standard in the European...

Contracting theory asserts that the income statement's primary role is to provide useful information for management performance evaluation. We study the effect of fair value accounting on this role by examining the change in earnings pay-performance sensitivity (PPS) following the 2005 worldwide...

This conceptual paper discusses the impact of fair value accounting practices on performance of commercial banks in relation to the established banking theories i.e. Credit creation, fractional reserve and financial intermediation theory. These theories are discussed in view of historical cost...