The Impact of Fair Value Accounting on Information Asymmetry: Evidence from Jordanian Banking Sector

Altawalbeh, Mohammad Abdullah Fayad

doi:10.5539/ibr.v13n9p55

Cited by 4 publications

(4 citation statements)

References 16 publications

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“…This assertion also implies the accuracy of ending balances in terms of impairment calculations, allowances, depreciation, amortization, and depletion, arriving at net realizable value and fair value. Manipulating account balances by exploiting flexibility in accounting policies and estimates is not only common but also has a serious impact on the validity of financial reporting (Lau, 2021;Altawalbeh, 2020;Ghazalat & AlHallaq, 2024;Ajekwe, 2021;Bajaja & Khalifa, 2015). Bajaja & Khalifa (2015) reported that the most commonly used methods of earnings management in Saudi Arabia are manipulation of allocations, asset valuation, and timing of revenue recognition.…”

Section: Survey Resultsmentioning

confidence: 99%

Managing Earnings Management: A Framework of Standards, Governance and Ethics

Shbeilat

2024

IBR

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Manipulating earnings to superficially represent financial reports is a flagrant violation of management's assertions about the fairness of financial statements. Therefore, auditors have developed objectives to counter management assertions to ensure that financial reporting is credible and free from earnings management practices (EMP).  This study examines the role of an integrated system of auditing standards and corporate governance surrounded by a framework of ethical values and principles in reducing EMP through the use of a sequential explanatory mixed method. Through this approach, the results obtained from 131 surveys were used as input for the interviews to add a more in-depth understanding of this phenomenon and find fruitful ways to reduce EMP. The results revealed that management's assertion on “accuracy, valuation and allocation” was most involved in EMP, thus, requiring a high degree of exercising professional skepticism. While “objectivity” was the ethical principle most respected by auditors, the results showed that the most serious threat to auditor independence that poses a challenge to the audit profession is the threat of intimidation. Moreover, the study showed that exercising the supervisory role in holding management accountable and following up on the work of auditors to uncover EMP requires real independence of the audit committee from the executive members. The findings have implications for economic policymakers in emerging countries where the sustainability of the audit profession and public companies is critical to economic development and stability. The study provides insights and guidance in mapping corporate governance for the future and benefiting from the experiences of developed countries as outlined in the study’s conclusion.

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Section: Survey Resultsmentioning

confidence: 99%

Managing Earnings Management: A Framework of Standards, Governance and Ethics

Shbeilat

2024

IBR

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“…Rawaa and Imad [29] explored fair value's influence on the accounting system of an Iraqi economic unit revealing that the financial position and comprehensive income statements were prepared according to fair value accounting. Altawalbeh [30] investigated the impact of fair value accounting on information asymmetry in the Jordanian banking sector. Results indicated that fair value has a significant negative effect on information asymmetry enhancing stakeholder access to accurate and relevant information.…”

Section: Previous Studiesmentioning

confidence: 99%

The impact of a fair value accounting application on takaful insurance surplus: Insights from Shikan insurance and reinsurance company limited in Sudan

Ali,

Issa,

Khairy

2024

5003

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This study examines the impact of fair value accounting implementation on the quality of measuring, equitable distribution and enhanced disclosure of takaful insurance surplus within Shikan Takaful Insurance and Reinsurance Company Limited's financial statements. Data was collected using a two-part questionnaire and a descriptive analysis technique: one gathering personal data about respondents and the other exploring study themes across four dimensions to test hypotheses. The questionnaire was distributed to a random sample of 60 corporate employees and 54 individuals responded, reflecting a 90% response rate. Data analysis used the Statistical Package for Social Sciences (SPSS). Three hypotheses were tested: (1) a positive relationship between fair value accounting and the accuracy of takaful insurance surplus measurement. (2) A positive relationship between fair value accounting and the equitable distribution of takaful insurance surplus. (3) A positive correlation between fair value accounting and enhanced disclosure of takaful insurance surplus. Results demonstrate a positive influence of fair value accounting on surplus measurement quality, equitable distribution and improved disclosure in company financial statements. The study recommends the crucial adoption of fair value accounting practices in insurance and reinsurance companies emphasizing the necessity of maintaining commitment to fair value accounting. Additionally, promoting full disclosure of takaful insurance surplus in financial statements is highlighted as a valuable tool for attracting new policyholders.

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“…A central explanation for the intervention is to provide useful information for the valuation of companies, consistent with the objectives of the Conceptual Framework for financial reporting than other measurement bases for both financial assets and liabilities (IASB, 2020; Kothari et al , 2010; Procházka, 2011). Palea and Maino (2013), Barth (2014) and Altawalbeh (2020) contend that fair value enhances the transparency of financial statements, which subsequently amplifies the value relevance of accounting information as users can value companies by discounting the markets’ future expected cash flows. In their literature review, Barth et al (2001) observe that the fair value measurement of financial assets and liabilities positively correlates with equity market value.…”

Section: Theory and Literature Reviewmentioning

confidence: 99%

“…Managers have been found to display intentional bias in their estimation when allowed to use discretion and highly subjective accounting information (Aboody et al, 2006). Level 3 fair values are subject to higher information asymmetry than Levels 1 and 2 fair values as their valuation derives from company-specific data and management's assumptions about market participants (Palea and Maino, 2013;Song et al, 2010;Altawalbeh, 2020). Investors typically place less importance on fair value measurements that they perceive to possess greater uncertainty (i.e.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Assessing the value relevance of fair value measurements: a South African perspective

Matsane

Nakpodia

Areneke

2022

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Purpose This paper aims to explore whether fair value Levels 1 and 2 measurements are more value relevant than Level 3 fair value measurements in a less-active market. Specifically, this research addresses two objectives. Firstly, it examines the value relevance of fair value measures for each disclosure level of fair value. Secondly, it assesses the impact of corporate governance on the value relevance of less observable fair value disclosures (Levels 2 and 3). Design/methodology/approach Drawing insights from agency theorising, this research adopts a quantitative approach (regression analysis) that investigates data from a less active financial market (South Africa). Findings Contrary to agency theory suppositions, the results show that investors in a less active market value management inputs more than market (more transparent) information. The authors also observe that investors pay limited interest to corporate governance structures when pricing fair value measurement, implying that they rely on factors beyond corporate governance mechanisms. Originality/value The authors’ findings offer useful evidence to standard setters and preparers of financial information. While the International Accounting Standard Board suggests that investors value transparent financial information, the data shows that investors in less-active markets value management’s inputs more than those of the market.

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The Impact of Fair Value Accounting on Information Asymmetry: Evidence from Jordanian Banking Sector

Cited by 4 publications

References 16 publications

Managing Earnings Management: A Framework of Standards, Governance and Ethics

Managing Earnings Management: A Framework of Standards, Governance and Ethics

The impact of a fair value accounting application on takaful insurance surplus: Insights from Shikan insurance and reinsurance company limited in Sudan

Assessing the value relevance of fair value measurements: a South African perspective

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