IFRS Subjectivity: the Other Side of the Coin

Abstract

The study shows the benefits of more discretion and less guidance in IFRS by presenting an arbitrariness and subjectivity index. The measurement of discretion proposed is based on a scale of values which improves the accuracy of information on measurements, allowing stakeholders to understand independently the level of subjectivity inherent in any accounting items. The study illustrates the matrix format statement, in which retrospective and dynamic accounting results, based on historical cost and fair value are combined, associated with an "accounting discretion view". By highlighting the degree of accounting discretion, this approach provides users with a clear and realistic vision in which accounting choices or estimates can be credible signals of a firm's financial performance. Regulators and users of accounting information have to accept a limited subjectivity in pursuit of more informative financial reporting because results seem to suggest that discretion, in spite of all the opportunities to manipulate reported outcomes and mislead users, appears to add value: reasonable and legal management decision making and reporting tend to achieve stable and predictable financial results.