Fair Value and the IASB/FASB Conceptual Framework Project: An Alternative View

Abstract

This paper analyses various controversial issues arising from the current project of the IASB and FASB to develop a joint conceptual framework for financial reporting standards. It discusses their possible implications for measurement and, in particular, for the use of fair value as the preferred measurement basis. Two competing world views are identified as underlying the debate: a Fair Value View, implicit in the IASB's public pronouncements, and an Alternative View implicit in publicly expressed criticisms of the IASB's pronouncements. The Fair Value View assumes that markets are relatively perfect and complete and that, in such a setting, financial reports should meet the needs of passive investors and creditors by reporting fair values derived from current market prices. The Alternative View assumes that markets are relatively imperfect and incomplete and that, in such a market setting, financial reports should also meet the monitoring requirements of current shareholders (stewardship) by reporting past transactions and events using entity-specific measurements that reflect the opportunities actually available to the reporting entity. The different implications of the two views are illustrated by reference to specific issues in recent accounting standards. Finally, the theoretical support for the two views is discussed. It is concluded that, in a realistic market setting, the search for a universal measurement method may be fruitless and a more appropriate approach to the measurement problem might be to define a clear measurement objective and to select the measurement method that best meets that objective in the particular circumstances that exist in relation to each item in the accounts. An example of such an approach is deprival value, which is not, at present, under consideration by the IASB.

Accounting and Regulation

“…The example focuses on non-financial assets first because there is a view that the standard setters, FASB and the IASB, may extend FV requirements in this area which has not been significantly analysed in the literature (see the discussion in Whittington 2008 andRonen 2008). Currently, the expansion of FV beyond financial instruments mainly builds upon its use in earlier financial standards and amounts to a gradual exercise.…”

The Worth of Fair Value Accounting: Dissonance between Users and Standard Setters

“…How standard setters expect investors and analysts to evaluate fair values can be inferred from a close reading of the standard-setting literature (e.g., the bases of conclusions of standards where fair value is prominently required such as IASB 2004IASB , 2011IASB , 2014IASB and AcSB 2005) and of the literature authored by individuals involved in standard-setting activities (e.g., Barth 2007Barth , 2014Hague 2007;Linsmeier 2011;McGregor 2007;Whittington 2008Whittington , 2015. The use of fair values has been explicitly justified in a rhetorical discourse about users' needs.…”

Estudos Internacionais Sobre Valor Justo (2000-2016): Temáticas, Métodos e Sugestões de Pesquisas Futuras

“…Nas últimas décadas, os principais pontos de interesse das pesquisas sobre a normatização do valor justo têm sido os pronunciamentos do Iasb e Fasb, em geral, apontando possíveis efeitos dessas normas no meio contábil (Song, Thomas & Yi, 2010;Bolívar & Galera, 2012;Goncharov & Triest, 2014) ou aspectos das normas (Elad, 2004;Jiang, Wang, & Xie, 2015). Whittington (2008), por exemplo, critica ao afirmar que as normas sobre valor justo consideram mercados perfeitos sendo esses, na verdade, ligeiramente imperfeitos e, portanto, desconsiderados no contexto normativo.…”