The Role of Fair Value Measurement in the Recent Financial Crunch

Abstract

Abstract:Fair value measurement became pervasive to fi nancial reporting over last 20 years. Under fair value accounting, entities are obliged or permitted to measure particular assets and liabilities at their fair values as at the reporting dates. Fair value is a current market-based hypothetical value. This market value is not always directly observable. The debate on usefulness of fair value accounting has arisen in connection with the fi nancial crunch and economic crisis in years [2007][2008][2009]. The opponents of fair value accounting insist on that fi nancial reporting based on fair value measurement has accelerated the fi nancial crisis and signifi cantly worsened the impact on affected companies. On the other hand, there are several important opinions in favour of fair value accounting. The paper aim is to contribute to the actual debate whether fair value accounting played the role of a messenger or a mover in the recent fi nancial crunch and subsequent economic recession and to analyse the characteristics of fair value accounting from the economic point of view.

Fair Value Measurement: Análise do Nível de Concordância dos Usuários da Informação Contábil com Relação aos Critérios Propostos na Minuta de Pronunciamento (ED/2009/5) do IASB

“…Em conexão com a recente crise econômica, diversas opiniões apareceram culpando a mensuração do valor justo como um ou o maior causador da crise (Abdel-Khalik, 2008;Escaffre et al, 2008;Wallison, 2008). O valor justo poderia estar escondendo a real situação ao mensurar ativos sem uma confiança e relevância de sua mensuração, sem falar em como isso irá afetar seu comportamento, pois é um valor hipotético, não aplicável aos mercados inativos e falhos quando faz um reconhecimento prematuro sem muita comparação (Procházka, 2011).…”

“…Com isso, veio a importância da mensuração correta dos elementos contábeis para o processo de preparação de tais demonstrações contábeis. Esses elementos podem ser mensurados de várias maneiras, dependendo de sua natureza e, uma delas, é por meio do valor justo (Procházka, 2011).…”

“…Sendo considerado o mais útil nas características de mercado, o valor justo atende as preocupações reportadas pelo processo de mensuração, tendo sido escolhido como a solução preferida no interminável tradeoff entre confiabilidade e relevância das informações contábeis (Procházka, 2011). Apesar disso, seu conceito, aceitação e critérios ainda são amplamente discutidos e debatidos, não sendo um consenso, tanto no meio profissional como acadêmico (Barth, 2007).…”

Fair Value Accounting: A Controversial but Promising System

“…Thus, numerous prior studies (e.g. Laux & Leuz, 2010;Pabuccu, 2011;Prochá zka, 2011;Badertscher, Burks & Easton, 2012;Kaya, 2013;Betakova, Hrazdilova-bockova & Skoda, 2014;de Jager, 2014;Markarian, 2014) have discussed the role of fair value in international financial crisis. For example, when the financial crisis occurred in 2008, some banks reclassified their financial assets in order to avoid recognizing the losses that resulted from fair value pricing after adopting IAS 39 "Financial Instruments: Recognition and Measurement" and IFRS 7 "Financial Instrument: Disclosures" (Mănoiu & Damian, 2015, p. 94).…”

“…Thus, it can be argued that fair value accounting is now an important dominant system (e.g. Hitz, 2007;Wier, 2009;Jaggi, Winder & Lee, 2010 ;Liao, Liu, Suvankulov & Branson, 2014;Yamamoto, 2014) used to a considerable extent by listed companies in all over the world (Taplin, Yuan & Brown, 2014) and created a lot of controversy and debate among interested parties (Bell & Griffin, 2012;Kaytmaz Balsari & Varan, 2014) due to existence of some difficulties in its implementation process, especially as a balance sheet measure (Hitz, 2007) and due to its supposed role in the international financial crisis of (Prochá zka, 2011Betakova, Hrazdilova-Bockova & Skoda, 2014;Markarian, 2014).…”