The Use of Fair Value Measurement in Financial Reporting: A Literature Review

Ramírez, Constancio Zamora; Díaz, José Morales

doi:10.25115/eea.v36i2.2540

Cited by 6 publications

(3 citation statements)

References 40 publications

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“…Thus, in the case of investment properties, there is a great discrepancy in the existing literature. On one hand, those who consider greater relevance of fair value versus historical cost (Allen & Ramanna, 2013;Baboukardos & Rimmel, 2014;Barth, 2014;Ehalaiye et al, 2017;Magnan, 2009;Zamora-Ramirez & Morales-Díaz, 2018); on the other, the position in favour of historical cost (Acaranupong, 2017;Liao, 2013;Machado & Machado, 2013;Magnan, 2009;Müller et al, 2015;Siam & Abdullatif, 2011). Other studies have found no empirical evidence that the fair value model increases the explanatory power of the price based on financial information (Hassan et al, 2006;Machado & Machado, 2013;McInnis et al, 2018), or they show mixed evidence (Danbolt & Rees, 2008;Hitz, 2007;Koonce et al, 2011;Sellhorn & Stier, 2019).…”

Section: Theoretical Framework and Development Of Hypothesismentioning

confidence: 99%

Capital markets and valuation models of investment properties. A pre and post crisis analysis

2022

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This work analyses the effect of the fair value and historical cost models, optionally applicable under IAS 40 for investment properties on the market value of Spanish groups of real estate listed companies between 2005 and 2018. The results of the application of the Ohlson Model do not suggest any relationship of financial information with the market value in the pre-crisis and economic crisis periods. However, in the post-crisis period, financial information represented by book value gains relevance, showing a significant positive relationship with the market value of real estate companies, although suggesting a reduction in the asymmetry of financial information in companies using the fair value method. Este trabajo analiza el efecto de los modelos de valor razonable y coste histórico, aplicables opcionalmente según la NIC 40 para las inversiones inmobiliarias, sobre el valor de mercado de los grupos inmobiliarios cotizados españoles entre 2005 y 2018. Los resultados de la aplicación del Modelo de Ohlson no sugieren relación alguna de la información financiera con el valor de cotización en los períodos de pre-crisis y crisis económica. Sin embargo, en el período post-crisis, la información financiera representada por el valor en libros gana en relevancia, mostrando una relación positiva significativa con el valor de mercado de las empresas inmobiliarias, aunque sugiriendo una reducción en la asimetría de la información financiera en las empresas que utilizan el método del valor razonable.

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Section: Theoretical Framework and Development Of Hypothesismentioning

confidence: 99%

Capital markets and valuation models of investment properties. A pre and post crisis analysis

2022

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“…These standards are based on a mixed measurement model under which historical cost coexists with fair value. Certain elements are measured at historical cost while others are measured at fair value (Cairns, 2006;Zamora-Ramírez and Morales-Díaz, 2018). In financial instruments 4 area, financial assets and liabilities are classified in several categories.…”

Section: Introductionmentioning

confidence: 99%

Relevance of Fair Value Disclosures in Spanish Credit Institutions

2022

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Spanish quoted credit institutions have applied IFRS for their consolidated financial statements since 2005. IFRS implied the implementation of the fair value measurement model for a greater number of financial instruments than previously, as well as the disclosure of the difference between fair value and book value for those financial instruments not measured at fair value on the balance sheet. In line with the value relevance literature, and through the application of an Ohlson model, we have analyzed whether fair value disclosures contribute to explaining the difference between the equity book value and the equity market value of the sample entities. We have modeled several variables related to the possible goodwill of the entities in order to increase the model’s explanatory power. Our paper is the first to focus exclusively on Spanish quoted credit institutions as well as to use an ample timeframe which includes pre-crisis, crisis and post-crisis periods (2004 to 2019). The results show that, generally speaking (and in contrast to previous studies focused on other regions), fair value disclosures within the sample entities are not relevant for investors. There are several possible explanations for these results which are related to the specific characteristics of Spanish credit institutions and to the time period utilized for the sample. Conversely, entity size was found to have a statistically significant impact on the value-relevance of the goodwill explanatory factors. Las entidades de crédito cotizadas españolas han venido aplicado las NIIF desde el ejercicio 2005. La implementación de las NIIF conllevó la aplicación del modelo de valor razonable para más instrumentos financieros y, además, el desglose de la diferencia entre el valor razonable y el valor en libros de los instrumentos financieros no valorados a valor razonable en el balance. Siguiendo la literatura denominada value relevance y aplicando un modelo de Ohlson, hemos analizado si los desgloses de valor razonable contribuyen a explicar la diferencia entre el valor contable y el cotizado del patrimonio neto de las entidades de la muestra. Hemos modelizado varias variables con relación al posible fondo de comercio de las entidades, con el objetivo de mejorar el poder de explicación del modelo. Nuestro trabajo es el primero que se enfoca exclusivamente en entidades de crédito cotizadas españolas y en un amplio período de tiempo que incluye épocas pre-crisis, épocas de crisis y post-crisis (2004 a 2019). Los resultados muestran que, en general (y, a diferencia de las conclusiones de otros estudios previos para otras muestras) los desgloses de valor razonable no son relevantes para los inversores. Hay varias posibles explicaciones para este resultado, relacionadas con las características de las entidades de crédito españolas y los años a los que se refiere la muestra. Por otro lado, el tamaño de la entidad tiene un impacto estadístico significativo en la relevancia de los factores explicativos del fondo de comercio.

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“…According to other, German GAAP standards are not worse (Van Tendello and Vanstraelen, 2005). Next theme of fair value, which is currently one of the most widely used measurement methodologies in IFRS1 accounting standards (Zamora-Ramirez and Morales-Diaz, 2018).Other authors have argued that IFRS are intended for consolidated accounts and for the needs of capital market investors, raising practical concerns about the relevance of IFRS for separate financial statements (European Financial Reporting Advisory Group, 2011) (Palea, 2014). Many authors, in turn, argued that the lower importance of the unitary financial statements may stem from their use for regulatory and tax purposes (Choi and Mueller, 1992;Delvaille et.al., 2005;Whittington, 2005).…”

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confidence: 99%

Innovation in financial reporting: the aspect of the capital group

Zimon¹

2019

MMI

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Enterprises operating in capital groups are made to create consolidated financial statements according to IFRS. In Poland, when trying to assess a financial situation based on consolidated financial statements, one may receive misleading information about a given capital group. In the capital group, there may be enterprises whose financial security is threatened and are close to bankruptcy and the consolidated financial statement presents the financial standing of the group as good. Is the current formula of the financial statements perfect, is it possible to improve it? The purpose of the article is to create an innovative formula of a financial report that will allow to easily and clearly assess the financial situation of enterprises belonging to capital groups. The new formula allows to clearly present the threats as well as the current situation of the business entity. The disclosure of possible threat symptoms may first of all be helpful to the unit, it will mobilize to descend from such positions, it will be possible to react to the deterioration of the assessment results, and it will be possible to find a shorter, faster way to find an investor. Even an investor who has such information can offer help himself. Information about symptoms is very important if something goes wrong, bankruptcy is not avoided despite hiding data, but it allows reliable assessment of the entity by owners, management and other recipients. The report of the new formula eliminates all financial instruments that are securities and their derivatives. The authors presented a proposal for changes only for the statement of financial position, but the changes should affect all parts of the report, which should be of interest to accounting officers. The innovative model of the new financial statements has been presented on the example of four Polish large enterprises. The methodology has been based on the national financial statements, as well as international guidelines and a proposal for changes. Statistical methods, financial indicators and comparison methods have been used. The financial data comes from the financial statements of the four Polish companies from 2016. The analysis of examples of large Polish enterprises showed that for the financial assessment and operational and financial safety, more information was provided by a new report form. Such a formula would also be very useful for unit reports.

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The Use of Fair Value Measurement in Financial Reporting: A Literature Review

Cited by 6 publications

References 40 publications

Capital markets and valuation models of investment properties. A pre and post crisis analysis

Capital markets and valuation models of investment properties. A pre and post crisis analysis

Relevance of Fair Value Disclosures in Spanish Credit Institutions

Innovation in financial reporting: the aspect of the capital group

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