This study examines the motives for asset revaluations in a sample drawn from 35 countries that permit asset revaluations. Prior studies that examined this issue concentrated on one or two countries, the UK and Australia, and showed that revaluations are related to financing needs, the capital intensity of the firm as well as issues related to political costs. The previous literature also found that revaluations were indicators of improved future performance and that performance was related to the magnitude of the revaluations. This study shows that although the conclusions drawn from the previous studies are applicable to countries that are similar to the UK and Australia, they do not hold when applied to a much larger set of countries and that the motivations for and effects of revaluation are not uniform across various country classifications. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.
In this paper, we focus on the relationships between international accounting harmonization (IAH) and the paradigm of Fair Value Accounting (FVA). Accountants rely on the accounting concept of comparability in defining IAH and are in agreement that a set of internationally implemented Generally Accepted Accounting Principles (GAAP) is required for a "complete harmonization." We argue, however, that a second requirement4 common denominator for measuring, recording, and reporting business transactions, assets, liabilities, and equitieH's necessary to reach a state of a "complete IAH." We explain the logic behind the requirement of a common denominator and assert that I A H is feasible under the paradigm of FVA, but not under that of Historical Cost Accounting (HCA). This is true because the concept of fair value, but not historical cost, provides the common denominator necessary for a meaningful comparison of accounting data. We then argue that the paradigm of FVA acts as a catalyst in a harmonization cycle: FVA propels I A H and IAH provides more relevant information that may foster the eficiency of global markets, which improves the quality of the FVA figures. The authors acknowledge the helpful and constructive comments of an annonimous referee. Professor Barlev acknowledges financial support from the Krueger Center for Finance and the Accounting Center at the Hebrew University of Jerusalem, Israel.
At the time of the Enron collapse, the new fair value accounting (FVA) paradigm was progressively incorporated into the framework of Generally Accepted Accounting Principles (GAAP), to serve along with the well-established historical-cost accounting (HCA) paradigm. Naturally, the Enron debacle involved misuses of both paradigms. As a result, the FVA—and in particular the “mark-to-model” valuation procedure—became a target for keen criticism. It was suggested that, apart from its application to a limited number of marketable financial instruments, the time of FVA had not yet come. In this paper, we reject this criticism and discuss the basic conditions that facilitated the abuse of FVA. We argue that despite the obvious advantage of value relevance information offered by the FVA paradigm, the lack of well-designed and effective, adequate control systems produced opportunities for the abuse and manipulation of FVA. We claim that the current control systems, designed for and capable of providing effective safeguards for HCA, are not suitable for FVA, and do not supply adequate safeguards for FVA. Furthermore, these existing accounting control systems turned into gauges for new standards and thus into barriers for FVA-based standards. These, among other reasons, caused the FVA to develop at a slow pace, creating a hybrid accounting system in which HCA and FVA are used simultaneously. We argue that the dual accounting system distorts the coherency of the reporting system, increases potential income management and “window dressing,” and nullifies the effectiveness of the existing control systems. We also stress that a well-designed and carefully implemented control system is indispensable for a properly functioning FVA model. We note that the proposed Statement of Auditing Standards, “Auditing Fair Values,” is an important step in the right direction.
The Conceptual Framework issued by the IASB and the FASB in 2010 excludes the concept of transparency on the grounds that it adds nothing to the existing corpus of qualitative characteristics. This paper argues that incorporating the concept of process transparency into the Conceptual Framework would provide the necessary conceptual basis for raising the status of the Management Discussion and Analysis from a non-mandatory guideline to an accounting standard. This would further the Boards' stated public interest objectives of “fostering trust, growth and long-term financial stability” by requiring disclosure of how critical accounting estimates affect reported results and, at a broader level, how and why key strategic management decisions are made. The paper derives this recommendation from a review of notions of transparency and “black box” in the public finance and management literatures. We also analyze the viewpoints expressed in comment letters to the Boards' Discussion Paper and the Exposure Draft, which preceded the Conceptual Framework. In contrast to the Boards' stance we find that most respondents who address the issue of transparency favor its inclusion in the Conceptual Framework. Finally, based on Kuhn's (1970) The Structure of Scientific Revolutions, we seek to explain the Boards' objection to the new concept. Data Availability: All data are available from public sources.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.