Content and context: “fair” values in China

Abstract

Purpose The evolution of International Financial Reporting Standards (IFRS) was nurtured by economists and accountants loyal to the philosophical basis of what is often referred to as “Western” market economies, being classical and neoclassical contracting theories. The purpose of this paper is to illustrate how a particular Asian cultural attribute (guānxì ) impacts on the efficacy of fair value measurement. Design/methodology/approach Using a literature review and research of studies of the adoption of IFRS in China, studies of both guānxì and fair value in Chinese accounting research, this study unbundles Williamson’s governance structure and contracting theory to examine how guānxì is positioned orthogonally to fair value (market-oriented valuation) principles for financial reporting. This is followed by a case study of the events surrounding the collapse of China Medical Technologies. Findings Guānxì is integral to Asian economies and economic transactions. Resulting conditions, characterised by relational contracting, may not meet the qualitative characteristics of neutrality and faithful representation in fair value measurement of assets and liabilities. The same may be true when insider or “trusted party transaction” values prevail for large ticket transactions among entities in any jurisdiction. Research limitations/implications Future research on the impact of guānxì may be constrained by its often hidden, and yet dynamic, character; and the varieties of its manifestations. Originality/value This study highlights how difficult it may be to achieve both comparability and relevance in the asset and liability recognition and measurement rules in Asian (and possibly also other) economies adopting accounting principles that are developed in a Western context.

Fair value accounting: Perspective on stewardship function

“…Others have focused on the factors driving the choice between fair value and historical cost accounting (Quagli and Avallone, 2010;Mäki et al, 2016;Hlaing and Pourjalali, 2012;Guthrie et al, 2011;Cairns et al, 2011;Chang et al, 2021). Moreover, some authors have discussed the usefulness of fair value measurement in relation to countries with different socio-economic environments (Balfoort et al, 2017;Zhang et al, 2012;Marra, 2016) and the impact of FVA on the quality and reliability of accounting information (Dahmash et al, 2009;Dietrich et al, 2001;Landsman, 2007). All the research threads mentioned above are based upon the informational approach, representing the majority of FVA research.…”

“…To allocate capital effectively, the values should be determined based on the assessment of all available information pertinent to rapid decisions. However, the belief of existence of market efficiency suggests that the fair value application in countries with market inefficiencies and relational contracting may be contra-productive (Balfoort et al, 2017;He et al, 2012). Zeff (2007: p. 291) posits that the existence of such markets is not abundant amongst IFRS adopters: "the asset pricing markets are not sufficiently deep to provide the necessary data with which to revalue many of the assets reliably".…”

Auditors' Response to Different Reporting Environments: Experimental Evidence From the Quantity and Quality of Auditors' Evidence Demands in China

“…Accounting is embedded in the specific contexts, including social, economic, legal, cultural, political background in additional to professional environments (Balfoort et al, 2017;Zeff, 2007). Accounting is embedded in the specific contexts, including social, economic, legal, cultural, political background in additional to professional environments (Balfoort et al, 2017;Zeff, 2007).…”

“…Auditors have an oversight role as part of the regulatory process, and therefore how the type of standards and regulatory regime affects auditors' decisions is important. Accounting is embedded in the specific contexts, including social, economic, legal, cultural, political background in additional to professional environments (Balfoort et al, 2017;Zeff, 2007). The national institutional environment, such as the strength of the regulatory regime, plays the first-order effect in triggering the outcomes of accounting standard implementation (Wong, 2016).…”

“…Accounting is embedded in socioeconomic, local legal, cultural backgrounds and professional environments (Balfoort, Baskerville, & Fülbier, 2017;Zeff, 2007). Thus, whether the International Accounting Standards Board (IASB) can achieve its goals in emerging markets such as China remains a controversial and inconclusive issue.…”