Relevance of supplementary fair value disclosures under market uncertainty: effects on audit fees and investors’ pricing

Mehnaz, Laura; Rahman, Asheq; Kabir, Humayun

doi:10.1108/maj-07-2021-3263

Cited by 9 publications

(4 citation statements)

References 63 publications

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“…This argument is consistent with the findings of the study performed by Mehnaz et al (2022) which indicates that additional disclosures of fair value on Level 3 properties, specifically during uncertain times, enhance the value of the information for auditors and investors. These findings underwrite the debate about the informativeness of expanded fair value disclosures.…”

Section: Fair Value Categoriessupporting

confidence: 91%

Evaluating The Effect of Fair Value Adjustments to Investment Property Based on Profitability Ratios

Smit

Niet

Botha

2022

JAI

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Research aims: The aim of the study was to determine whether fair value adjustments to investment property affect the profitability ratios of listed companies. Design/Methodology/Approach: To investigate the problem, a brief literature overview of performance analysis through ratio calculations, as well as fair value measurement are discussed. These discussions are based on the International Financial Reporting Standards (IFRS), IFRS 13 and International Accounting Standards (IAS), IAS 40. IAS 40 addresses how the value of investment property may be recognised through the fair value model. To determine whether the recognition of fair value adjustments affect the profitability ratios of sampled companies, the Wilcoxon rank test and Cohen’s d-value were used as statistical measures to fulfil this objective. The Top 40 companies as listed on the Johannesburg Stock Exchange (JSE) in South Africa were populated, and judgment sampling was applied to calculate the sampling frame.Research findings: The results demonstrate that 50% to 75% of the sampled companies had profitability ratios, which were impacted by the recognition of fair value adjustments. These findings are relevant to potential investors who need to interpret financial ratios to improve investment decisions. Finally, the study recommends that the prospective investor eliminate fair value adjustments when profitability ratios are calculated.Theoretical contribution/Originality: The contribution of the study is that fair value adjustments (favourable or unfavourable) relating to IAS 40 affect the decisions taken by users of the financial statements. Substantial changes to profit or loss and/or investment property significantly impact ratio analysis outcomes and, therefore, investor decision making. The research contributes to the use of fair value adjustments and its impact on profitability ratios. Practitioner/Policy implications: Regulators may benefit from the findings when considering regulatory reforms of accounting practices as well as the disclosures required that assist the users of financial statements.

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Section: Fair Value Categoriessupporting

confidence: 91%

Evaluating The Effect of Fair Value Adjustments to Investment Property Based on Profitability Ratios

Smit

Niet

Botha

2022

JAI

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“…From newer sources, we can mention [38][39][40] and [41,42] as a possible source of comparison, which, however, provide data of a different nature and are not suitable for comparing our findings. However, they fundamentally complement our claims and not only in the European context.…”

Section: Discussionmentioning

confidence: 99%

European Real Estate Properties Valuation: Ten Years After Adopting IFRS 13

Škoda,

Bočková,

Guzoňová

2023

HighTech. Innov. J.

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IFRS 13 had its mandatory implementation on January 1st, 2013. The new accounting standard, which represents one step closer to harmonization between U.S. GAAP and IFRS, aims to eliminate inconsistencies in fair value measurement and its related disclosures through the introduction of new reporting requirements, specifically for assets and liabilities with no active markets. Although these demands also encompass information concerning financial instruments, our focus was on the disclosure changes related to the fair value of investment properties, previously regulated solely by IAS 40. As investment properties comprise the majority of assets in the real estate industry, this sector was further examined. Through a statistical analysis of the sample companies’ annual reports for the periods immediately before and after the implementation of IFRS 13, the purpose of our descriptor-explanatory study was to investigate the level of compliance with IFRS 13 fair value disclosure requirements for investment properties in real estate companies in Europe. In order to answer this question, we first scrutinized the level of compliance with the new disclosure requirements brought up by the standard and then, intermediated by an adaptation of the model developed by Beretta & Bozzolan (2008), measured the disclosure quality for both periods considered. After data collection and analysis, our findings reveal that IFRS 13 does affect the disclosure quality of investment properties in real estate companies in Europe. Overall compliance is very high, while disclosure quality has increased since the implementation of IFRS 13. As a way to further broaden the research related to the more extensive disclosure requirements under IFRS 13, we suggest additional studies be undertaken where the point of view of the real estate companies could be explored. Moreover, it would be interesting to investigate whether the increased number of disclosures, both in relation to quantity and quality, is relevant from an analyst’s standpoint. Doi: 10.28991/HIJ-2023-04-03-04 Full Text: PDF

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“…COVID-19 extended from Wuhan, China, to the rest of the world in late 2019 and early 2020. The pandemic was one of the worst natural disasters in history, causing unprecedented devastation (Mehnaz et al , 2022). According to recent studies (Alharasis, 2023), the world economy was hit the most by the COVID-19 pandemic compared to previous pandemics [such as Severe Acute Respiratory Syndrome, Ebola and the Spanish flu].…”

Section: Introductionmentioning

confidence: 99%

Key audit matters and auditing quality in the era of COVID-19 pandemic: the case of Jordan

Alharasis,

Alkhwaldi,

Hussainey

2024

IJLMA

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Purpose This study aims to investigate the moderating effect of the COVID-19 epidemic on the relationship between key audit matter (KAM) and auditing quality. Design/methodology/approach The authors use the ordinary least squares regression on data from 942 firm-year observations of Jordanian non-financial institutions across the period (2017–2022) to test the hypotheses. The authors use content analysis method to measure levels of KAM disclosure. Findings The investigation’s findings highlight the importance of KAM disclosure in achieving audit quality in line with international standard on auditing no. 701 (ISA-701) requirements. COVID-19 is also found to have a positive relationship with audit quality, further confirming the crisis’s devastating impact on audit complexity and risks and providing evidence for the need for supplementary, high-quality audit services. Due to the correlation between KAM disclosure and increased auditor workload and responsibility, the analysis reveals that the COVID-19 factor strengthens the link between KAM disclosure and audit quality. Practical implications This study has the potential to be used as a basis for the creation of a new regulation or standard regarding the reporting of unfavourable events in financial filings. This study’s findings provide standard-setters, regulators and policymakers with current empirical data on the effects of implementing ISA-701’s mandate for external auditors to provide more information on KAM. The COVID-19 crisis offers a suitable setting in which to examine the value of precautionary disclosures in times of economic uncertainty, as well as the significance of confidence interval disclosures and the role of external auditing in calming investor fears. This analysis is helpful for stakeholders, regulatory agencies, standard-setters and readers of audit reports who are curious about the current state of KAM disclosures and the implementation of ISA-701. The results may have ramifications for academia in the form of a call for more evidence expanding this data to other burgeoning fields to have a clear explanation of the real impact of reporting KAM on audit practices. Originality/value To the authors’ awareness, this research is one of the few empirical studies on the effect of the COVID-19 crisis on auditing procedures, and more specifically, the effect of disclosures on KAM by external auditors on audit quality. This study’s findings represent preliminary scientific evidence linking the pandemic to business performance. Minimal research has been done on how auditors in developing nations react to pandemic investor protection and how auditors’ enlarged reporting responsibilities affect them. The vast majority of auditing studies have been conducted in a highly regulated system, so this research contributes by examining audit behaviour in a weak legal context.

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Relevance of supplementary fair value disclosures under market uncertainty: effects on audit fees and investors’ pricing

Cited by 9 publications

References 63 publications

Evaluating The Effect of Fair Value Adjustments to Investment Property Based on Profitability Ratios

Evaluating The Effect of Fair Value Adjustments to Investment Property Based on Profitability Ratios

European Real Estate Properties Valuation: Ten Years After Adopting IFRS 13

Key audit matters and auditing quality in the era of COVID-19 pandemic: the case of Jordan

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