Academic literature on the topic 'Fair value reporting FASB'

The revision of SFAS No. 123 (SFAS No. 123R, FASB 2004) requires companies to recognize the fair value of employee stock options. In addition, nonpublic companies will no longer be permitted to assume stock price volatility of zero when calculating the fair value of their stock options. This study finds that the zero volatility assumption allowed under the original version of SFAS No. 123 (FASB 1995) resulted in an average estimated fair value of options that was $1.06 (40 percent) less than the fair value calculated using a peer group volatility estimate for firms undergoing an initial public offering (IPO). However, IPO firms that estimated their volatility underreported option values by an even larger magnitude than the group using the zero volatility assumption. Perhaps these firms reported a downward-biased estimate of volatility to inhibit analysts from computing option values using more reasonable volatility estimates. Contrary to the findings for public companies, we find that a large percentage of sample firms issued in-the-money options prior to going public. Following the IPO, only a small portion of firms issued in-the-money options. The concerns regarding recognizing option expense may be less important than the benefits of granting in-the-money options for IPO firms.

Desde hace unos cuarenta años, el valor razonable se ha venido utilizando cada vez más en las normas emitidas por el IASB y por el FASB. En este sentido, ha existido un gran debate con relación a la relevancia y a la fiabilidad del valor razonable como método de valoración. En principio, los marcos conceptuales del IASB y del FASB se basan en el Paradigma de la Utilidad, y el valor razonable debería aplicarse si ofrece información relevante a los inversores. En el presente artículo revisamos las investigaciones previas en torno al valor razonable (centrándonos en el área de instrumentos financieros y la relevancia del valor razonable). Hemos clasificado los artículos en líneas de investigación y hemos analizado principales conclusiones obtenidas en cada línea. Los autores concluyen que el valor razonable es el modelo que mejor refleja las actividades de gestión de riesgo. La información que ofrece el valor razonable es generalmente relevante para los inversores. La evidencia es mayor en los valores razonables clasificados en los Niveles 1 y 2.

Measuring and reporting liabilities at fair value is part of the FASB's overall project on fair value measurement and reporting. The FASB has taken the position that in measuring and reporting the fair value of a liability, such as a debt financial instrument, the fair value measure should reflect the credit standing of the issuer. Furthermore, changes in fair value, including the effect of changes in the issuer's credit standing, should be reported as gains and losses on the issuer's income statement. Whether liabilities should be reported at fair value and whether the fair value measure should incorporate credit standing and changes in credit standing are controversial issues. The primary controversy centers on the counterintuitive results of an entity's recording of a loss if its credit standing improves or a gain if its credit standing deteriorates. In this paper, we advocate an alternative position. We propose that liabilities be measured and reported using risk-free rates. This proposed approach recognizes the default risk portion of a debt's fair value as a distribution to shareholders when the liability is incurred. Our proposal supports the FASB's position that an entity's cost of borrowing, that is, interest expense on the entity's income statement, should reflect its credit standing and changes in its credit standing. We believe that our approach to accounting for liabilities is a viable alternative that warrants consideration. It avoids counterintuitive results, is consistent with the theories underlying the pricing of debt securities, and is more consistent with a going-concern assumption that an entity is expected to fulfill its debt obligations.

<p>This article examines the accounting change effective after December 15, 2015 and illustrates the Goodwill Accounting Alternative available to private companies as introduced by the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-18 Business Combinations (Topic 805) Accounting for Identifiable Intangible Assets in a Business Combination—a consensus of the Private Company Council (PCC). The measurement and reporting results of private companies are compared with those of public business entities and not-for-profit entities (i.e., non-private companies) for the same in-scope transactions (i.e., acquisitions, assessing fair value under the equity method, and reorganizations). If a private company adopts the FASB ASU 2014-18, then it must also adopt the FASB ASU 2014-02 Intangibles-Goodwill and Other (Topic 350) Accounting for Goodwill—a consensus of the PCC. This results in the private company amortizing goodwill over 10 or fewer years using the straight-line method. Non-private companies use goodwill impairment testing involving fair value measurements. The illustration presented includes a comparison of the initial and subsequent period measurement and reporting requirements and results and indicates that financial accounting choice can result in a significant monetary difference in the total reported owners’ equity.</p>

SYNOPSIS The Financial Accounting Standards Board (FASB) (2010) proposes that all financial instruments be measured at fair value in the financial statements. This commentary provides one Board member's reasoning for supporting this proposal, which is based on (1) evidence that the amortized cost model failed to provide timely information about the deteriorating financial condition of failed banks in the current financial crisis, (2) lessons learned from prior financial crises affecting financial institutions in the United States and Japan, and (3) research evidence indicating that fair value measures are most highly correlated with banks' exposures to interest rate and credit risk—two key risk exposures that have led to bank failures in the three most recent financial crises.

Accounting standard boards (IASB and FASB) are aimed at designing high-quality standards able to increase transparency and comparability of financial reporting. They have chosen fair value accounting (FVA) approach to improve the quality of financial reporting and at the same time help financial reporting users in the decision-making process. During recent years, an intense debate has arisen about the trade-off between relevance and reliability of accounting information using this approach. Many authors outline problems related to the fair value hierarchy valuation of financial instruments, in particular, the discretionary use of unobservable inputs in financial instruments valuation process in support of earnings management. Tutino and Pompili (2018) have identified a general negative correlation between the extent of FVA and earning quality. Stating this, the main objective of the paper, using the same approach of the previous one, is to identify the specific impacts of unobservable inputs on earning quality. Theory and previous literature suggest a major negative impact of unobservable inputs than observable ones on the quality of information provided within financial reporting. Results show a negative and strong relationship between FVA and earning quality for US banks that do not depend on the hierarchy of input used in the evaluation process. These results suggest new considerations on the reliability of fair value concerning the possibilities of manipulation given to the management with this approach.

Recently, fair value measurement and its implication in accounting standards have been increasing (Ramanna, 2006). One of the important aspects of financial reporting is measurement (Barth, 2007). Barlev and Haddad (2003) state that the fair value accounting(FVA) paradigm replaced the historical cost accounting (HCA) in the development of accounting standards that FVA is more value relevant that HCA probably did not provide the real financial information and income. However, previously studies mention that fair value accounting suffers from some serious limitations and disadvantages such as issues in market approach, income approach, and cost approach. Al-Yassen and Al-Khadash (2011) argue that accounting standard setters such as the International Accounting Standards Board (IASB) UK and the Financial Accounting Standards Board (FASB) U.S as well as other national accountingstandard setters provide high attention and long-term ambition to use fair value accounting as full measurement in all financial instruments. Islamic Financial Institutions (IFIs) that have different objectives and principles as well as have different financial products with conventional financial institution. This paper tries to explore critical aspects of the fair value accounting andits implications to Islamic Financial Institutions implications. This study concludes that that fair value accounting measurement provides many critical aspects to be implemented to Islamic Financial Institutions (IFIs). Additionally, AAOIFI proposed cash equivalent value as respond to fair value measurement that cash equivalent value when the attribute condition are present such as the relevance, reliability and understandability of the resulting information. Furthermore, fully adopting International Financial Reporting Standards (IFRS) issued by IFRSIASB, there will no specific standards for unique functions of Islamic Financial Institutions. Inaddition, the paper may be recommended to work together among Muslim countries to unity the potential harmonizing one set accounting standards for Islamic Financial Institutions such as AAOIFI?s standards.

Accounting standard boards (IASB and FASB) have chosen fair value accounting (FVA) approach to help financial reporting users in the decision-making process. During recent years, an intense debate arose about the trade-off between relevance and reliability of accounting information in this approach. Even if fair value based information could be considered highly relevant and helpful from an investor’s perspective, many authors outline problems related to fair value hierarchy valuation of financial instruments. In particular, the discretionary use of unobservable inputs in financial instruments valuation process can support earnings management strategy underlying the risk for emerging agency problems, moral hazard behaviour and management short-termism. Stating that, after providing a literature review focused on management behaviour related to FVA, the main objective of the paper is identifying possible relationships between FVA valuations and earning quality observing a sample of US and European banks listed in the period 2011-2016 based on Šodan model (Sodan, 2015). Results show a negative and strong relationship between FVA and earning quality for US banks; results for European listed banks do not provide any strong evidence.

The financial crisis of 2007-2008 sparked a debate over the usefulness of fair value accounting. Many banks and other financial institutions claim that the strict rules of fair value accounting exacerbated the financial crisis. To fix the problem of fair value accounting, FASB issued FAS 157-4, FAS 115-2 and FAS 124-2. These Staff Positions relax the rules for fair value accounting by providing entities more flexibility in fair value estimates and OTTI reporting. This study explores the merits of these changes to fair value accounting and analyzes whether they will improve banks’ financial reporting. First, I examine the role of fair value accounting in the recent financial crisis. Next, I evaluate whether these Staff Positions result in more useful information to investors and other decision makers. I find evidence that suggests that fair value accounting had a limited role in the financial crisis and did not contribute to banks’ financial burdens. These findings bring into question the purpose and necessity of FAS 157-4, FAS 115-2 and FAS 124-2. Furthermore, my analysis shows that these Staff Positions do not enhance the usefulness of information to decision makers. In fact, they appear to weaken the usefulness of financial information.

2007/2008
FASB introduction of FIN 46/R variable interest consolidation model proved revolutionary as it ties up the accounting to the economic/financial frameworks and the judicial one. Legal structures and agreements among stakeholders of entities, creating net assets’ variability, have from now on to be compared with expected losses and expected returns distribution, prior to identify which stakeholder will need to consolidate pursuant this Interpretation. As a result, return variability gains weight in the definition of variable interest entity with consequences still to be completely digested by practitioners and reporting enterprises. Because of the implementation of this Interpretation, consolidation by a party that absorbs most of the entity expected losses will have precedence even over stock-ownership’s control by the parent company (voting rights driven). The revolution though is only meant for a wide, yet selected, subset of entities' classes being securitisations, life and health insurances and governmental organisations aimed for profit, left outside the scope of this Interpretation. Consolidation through variable interest model is the result of four major steps. First alone is the definition of entity, being any legal structure to conduct activities and hold assets. Second, the identification of the variable interests in it, deriving from recognition of the aggregate which fair value changes with changes in fair value of net assets, exclusive of variable interests. These changes in fair value are considered regardless of embedded voting rights; hence, mezzanine finance, preferred stock and any hybrid equity instrument in general need to be detailed in their features prior to taking further decision. Third, the estimate of expected losses and residual returns whose value relevance has been given vast insight in this paper. Fourth and last step, the recognition of the primary beneficiary, when it exists, which is the party that absorbs the greatest share of expected losses and/or that benefits the most from expected residual returns and ultimately, the party that will consolidate the variable interest in object. Throughout the variable interest consolidation process, the concept of ‘equity at risk’ is introduced by FASB to define which is the effective portion of equity that absorbs variability created by net assets of the variable interest entity. Notwithstanding an introduced sufficiency test, aimed at deducting from US GAAP equity, all components that are not legal obligations to capitalise the entity, still difficulties exist. This is due to a series of exclusions namely; legal equity is to be deducted of fees, loans or guarantees thereof, shares issued in exchange of subordinated interests in other VIEs shall be subtracted as well from equity at risk, in the end also investments to be considered non significant shall be deducted. In this regard, valuations are either explicitly or implicitly to be done at fair value, hence book values need to make room for financial analysis giving in this respect value relevance to the Interpretation. The ‘equity at risk’ concept is the result of deductions that run through both sides of the balance sheet. Particular judgment shall be used in evaluating guarantees and other off-balance sheet obligations. This paper takes also in consideration the test proposed by FASB for ‘non significant investments’ proposing a refined method to reduce variability in interpretative judgment by the reporting entity. Furthermore, FASB identifies a new category of VIEs: variable interests in specified subset of assets of a VIE (i.e. a guarantee) which can be treated as distinctive VIEs by FASB only if the fair value of the same assets is greater than 50% of the whole fair value of the entity. If so happens, then equity at risk is to be deducted accordingly and expected losses/residual returns (EXLS/EXRR) of this subset of assets is not considered for sake of determining the primary beneficiary. The distinct VIE, which in accounting goes also under the name of Silo, will have to be treated separately as another VIE. From this analysis on assets and financial structure, which is derived from CON 6, FASB correctly deconstructs the accountancy legacy notion of control by segregating the decision making ability on the VIE from the variability absorption rights and obligations. The former, given by the financial decisions on VIE’s financial structure and by investment on net assets, the latter dictated by obligation to fund losses and to receive residual returns, i.e. by assigning the right to receive future residual returns and the obligation to make future capital contributions. Under a valuation viewpoint, assets and liabilities of newly consolidated VIE are measured at fair value while the ones already pertaining to a primary beneficiary, which is already a parent, remain reported at carrying value being already in the consolidated balance sheet of the controlling company. FIN 46/R in this way allows goodwill to be recognised for acquisitions of VIEs, which constitute businesses for use in this Interpretation. If the consideration paid for the VIE interest (carrying value plus premium/discount) is instead lower than the fair value of its net assets at consolidation, then a decrease in value of the newly consolidated assets shall be reported. Exception is made by cash & marketable securities, tax assets, post retirement plans and the likes. In this regard VIEs, which are not businesses will originate extraordinary gains or losses accordingly, in case of extraordinary gains, the value of the newly acquired assets is stepped-up pro quota. While FIN 46/R valuation principles of expected losses, expected residual returns and definition of balance sheets arising from VIE consolidation, resides on fair values, practitioners and reporting enterprises alike base their forecast from use of private information. This in turn, gives birth to entity-specific values, which take into account private information comprising of entity plans and current competitive strategy, which are a function of present industry positioning. Part of the process in determining EXLS/EXRR and the existence or not of a primary beneficiary, in line with the variable interest consolidation model, is to go through a profit variability analysis to be done through discounted cash flow models. To try to shed some more light on this regard we have first refreshed the mathematics of series of random variables with the objective to estimate VIEs’ expected cash flows of income. VIEs are generally modelled as a random variable with statistic mean different from statistic mode, a fact omitted in some passages of FIN 46/R exposition. Subsequently we have underlined that the variability of returns is directly related with the interval of confidence set for distribution functions representing random variables when computing the reporting entity forecast of expected variability. The potential deadlock could be widening when different interest holders are implementing different modelling of the reporting entity which yield to different results, but still acceptable under the Interpretation prescriptions. FASB introduction of non-previous US GAAP measures like EXLS/EXRR are, as we believe, in need to be backed up by a more robust theoretical framework. To do so, we needed to characterise the choice of the discount rate. In this framework, we have once again taken the theoretical basis of cost of capital, highlighting the equivalence of the results of other methods; including pros and cons of the utility functions and certainty equivalence method and the risk adjusted probability method. We have then given evidence on why FASB should use the cost of capital method as the discount rate to compute income variability together with income streams. In fact, by using the cost of capital method, and the WACC deriving from CAPM, all financial risk is embedded in the discount rate leaving the reporting enterprise free to express in the books the operational risks known or of most suitable estimation. Nowadays marginal cost of debt and market value of equity are used in common practice, according with CAPM theory, and have their use extended to private businesses. The cost of capital for private enterprises make use of sensitivity correlation coefficient of the enterprise return over the market return (beta coefficient) are of difficult estimate for private entities although betas can be computed in a number of ways using assumptions which are proper of the enterprise and its industry peers. To close the chapter related to valuation, finally we have focused on how these methodologies are being implemented by corporate America realising that the fears for value relevancy and hardship in tailoring the application to the single entities is a shared feeling and still a process far from crystallisation. In particular, FASB does not impose a clear conversion from book values to either fair values or value-in-use ones. It neither rules out the use of different valuation methods, if not for particular aspects treated within its FSP 46/R-S, in the exercise of computation of expected variability, which we have to recognise has not been proper of the accountancy function until lately. This thesis proposes an algorithm that goes in detail in the application of FIN 46/R for a reporting enterprise taking into account all possible interrelations among interest holders and distinct interest in subset of assets. The algorithm brings to light the weaknesses in application of the Interpretation caused by potential interrelations between expected losses assessment and variable interests in specified assets, wherever the fair value of these is more than 50% of net assets, i.e. distinctive VIEs. The algorithm, despite being in line with FIN 46/R prescriptions, does not cope with situations of cross default of related parties’ investors in the same VIE. However while the application of a cause and effect model is not always possible we think increased consolidation constraints would highly reduce these possibilities. In the process for determining if the reporting entity is a VIE, FASB develops also the ‘at risk’ test, highlighting once again the relevant weaknesses of the concepts of ‘previous ability to finance operations without subordinate financial support’ and ‘comparability with other similar entities which autonomously finance themselves without subordinated support’. We believe that the "at risk test" should only be a numeric test to iron out misinterpretations and gain relevance in consistency. FASB introduction of an exclusion sufficiency test to exclude variable interests for being classified as VIEs leaves, in our opinion, some uncertainties to the ‘participation in VIE design’ concept or to the ‘non significant interest’ one. This test, we believe, ought not to be a determinant factor, the level of polarisation of risk/reward of the consideration should instead be the sole paramount predictor for exclusion. As far as the conditions used to determine if the entity has sufficient equity to sustain its operations without financial support, the condition sine qua non of the minimum 10% of equity value over total assets, coupled with the triad of valuation methods proposed by FASB, should have been more stringent and concise in its ruling. In fact, these methods leave again interpretative flexibility about the inputs used to demonstrate sufficiency. From a thorough profit variability analysis the thesis compares how the responsibilities and efforts to cope with FIN 46/R requirements are distributed among VIE stakeholders, namely auditors, reporting enterprises, standard setters and regulators. This has been done comparing the use of CON 7 approach to the traditional cost of capital approach used in corporate finance. Furthermore, we have put in evidence that by implementing FIN 46/R VIEs entities tend naturally to overstate income variability valuations, being income streams discounted at Rf, heightening capital requirements. We would like to close by making a forecast on long-term developments that we envisage this Interpretation will bring forward, by starting to think on which are the VIEs stakeholders that are bound to be the most disadvantaged. This is again the class of primary beneficiaries of smaller sizes, which will have either to recourse to more lending to cover for capitalisation requirements and increased financial leverage, or face financial distress. Both cases are precursors to industry consolidation and forebears of globalisation, while the class most favoured will be the banking industry.
RIASSUNTO (ITALIAN): L’introduzione del FIN 46/R (FASB Interpretazione N. 46/R) da parte del FASB (Financial Accounting and Standards Board) si è dimostrata rivoluzionaria grazie al nuovo modello di consolidamento che si interpone tra il contesto economico finanziario e quello legale delle entità oggetto di questa interpretazione. Forma legale e relativi accordi tra stakeholders delle entità, definite come qualsiasi forma legale di impresa e veicolo finanziario, devono d’ora in poi essere confrontati con un’analisi della variabilità attesa degli utili prima di identificare quale stakeholder debba consolidare l’entità in oggetto (beneficiario primario). Di conseguenza il concetto di variabilità (varianza) dei redditi acquista un peso determinante nella definizione di variable interest entity (VIE) con conseguenze che devono essere ancora completamente digerite da professionisti e imprese che devono adeguarsi a questa interpretazione contabile. In virtù della stessa il consolidamento da parte del portatore di interessi che assorbe la maggioranza delle perdite attese ora avrà la precedenza perfino sull’azionista o sulla controllante che dovesse detenere la maggioranza assoluta dei diritti di voto. Questa rivoluzione è stata per ora intesa per un vasto, ma selezionato, insieme di classi di imprese, essendo ad esempio SPV di assicurazioni vita e veicoli finanziari di enti governativi a scopo di lucro lasciati (per ora) fuori dall’ambito di questa interpretazione. Il consolidamento attraverso il modello variable interest (VI) è il risultato di quattro passi. Innanzitutto, la definizione di entità comprendente qualsiasi forma legale intesa a compiere un’attività economica o a possedere degli attivi. Secondariamente l’identificazione dei cosiddetti interessi variabili nell’entità precedentemente definita; questi VI derivano dall’identificazione dell’aggregato dell’entità in analisi il cui fair value muta di valore al variare del valore dei net assets dell’entità al netto degli stessi interessi variabili. Le variazioni del fair value di questi asset sono considerate indipendentemente dai diritti di voto a loro associati, quindi forme ibride di capitale azionario quali azioni privilegiate, mezzanini e altri strumenti affini devono avere chiaramente dettagliate le loro caratteristiche prima di poter analizzare il loro comportamento e poter prendere una decisione. Terzo punto, la stima della variabilità attesa degli utili (perdite potenziali attese e utili residui attesi) della VIE la cui rilevanza ai fini della teoria del valore è stata data ampia trattazione in questa tesi. Quarto e ultimo passo, l’identificazione del beneficiario primario, quando questo esista, definito come la parte che assorbe la porzione maggiore di perdite e/o beneficia maggiormente degli utili residui e che, in ultima analisi, deve consolidare l’entità a interesse variabile in oggetto. Altrimenti la VIE è considerata tale da distribuire sufficientemente il rischio tra gli stakeholder. Attraverso il processo di consolidamento il concetto di ‘capitale azionario a rischio’ (Equity at risk) è introdotto da FASB per definire la frazione del capitale azionario che assorbe effettivamente la variabilità creata dal capitale investito netto (Net Assets) della VIE. Nonostante un apposito test (condizione sufficiente) sia stato proposto da FASB alcune difficoltà interpretative sono ancora presenti. Queste sono dovute ad una serie di deduzioni dal capitale legale che deve essere dedotto di pagamenti per servizi, prestiti o garanzie degli stessi. Azioni emesse in cambio di interessi subordinati in altre VIE dovranno altresì essere dedotti dal totale dell’Equity at Risk, così pure per gli investimenti di valore cosiddetto trascurabile (non-significant). Tutte le valutazioni al riguardo devono essere fatte al fair value, quindi i valori contabili dovranno sempre fare spazio all’analisi finanziaria dando rilevanza ai fini del valore a questa interpretazione. Il concetto di ‘equity at risk’ è il risultato di deduzioni prese da entrambi i lati dello stato patrimoniale. Particolare attenzione è richiesta nella valutazione delle garanzie e altri obblighi fuori bilancio. Questa tesi prende in considerazione anche il test proposto da FASB per valutare gli investimenti trascurabili (non-significant) proponendone uno alternativo che, secondo il nostro giudizio, ne riduce la varianza interpretativa in ambito di redazione del bilancio. Da questa analisi sugli asset e sulla struttura finanziaria, in accordo con i concetti CON 6, FASB correttamente smonta la nozione di controllo ereditata dall’attuale contabilità separando la capacità di prendere decisioni di gestione della VIE da obblighi e diritti di assorbimento della variabilità dei risultati economici della stessa. La prima è data dalle decisioni sulla struttura finanziaria e da quelle in merito agli investimenti nel capitale investito, la seconda dettata dagli obblighi di ricapitalizzare le perdite e di ricevere utili residui. All’atto del consolidamento gli elementi di stato patrimoniale della VIE vengono misurati al fair value mentre quelli che già sono di pertinenza del beneficiario primario con precedente ruolo di controllante (Parent Company) rimangono iscritte a bilancio al valore di carico essendo già parte del bilancio. In questo modo FIN 46/R permette il riconoscimento di un avviamento (goodwill) all’acquisizione di una VIE che si possa considerare come un’impresa ai fini di questa interpretazione. Se invece il prezzo corrisposto per l’interesse acquisito (valore di carico +/- premium/discount) è inferiore al fair value dei suoi net assets per effetto del consolidamento si dovrà registrare una diminuzione di valore degli asset appena consolidati. Eccezion fatta per cassa, crediti di imposta, fondi TFR e simili. In questo caso VIE che non sono assimilabili ad imprese origineranno conseguentemente una perdita (o utile) straordinaria, in caso di utile straordinario il valore del nuovo asset acquisito è aumentato pro-quota. Mente i principi di valutazione del FIN 46/R che riguardano la definizione di valori di bilancio originatisi dal consolidamento della VIE, risiedono interamente nel fair value, a professionisti e imprese è richiesto invece di basare le loro previsioni di variabilità degli utili su informazioni private, che quindi danno origine a valori di tipo entity-specific, comprensive dei piani aziendali in accordo con la strategia industriale adottata, che sono funzione dell’attuale posizionamento competitivo di settore. Questo è causa di problemi legati alla divulgazione di informazioni e indirettamente alla tracciabilità dei risultati. Parte del processo utilizzato per l’applicazione del VIE model passa per la stima della variabilità degli utili (Expected Lossess, Expected Residual Returns, EXLS/EXRR) e per la verifica dell’esistenza o meno del beneficiario primario. La stima è il frutto di un’analisi di variabilità (varianza) dei redditi attraverso l’uso di DCF (discounted cash flow models). Per fare chiarezza su questo punto abbiamo prima rivisitato alcuni aspetti delle serie di variabili aleatorie con l’obiettivo di caratterizzare il contesto teorico a corredo della stima del reddito/utile atteso della VIE. VIE possono essere generalmente modellizzate come una variabile aleatoria con una media statistica in generale diversa dalla moda statistica, un fatto omesso in alcuni passaggi dell’esposizione del FIN 46/R che può portare ad incertezze in fase implementativa dell’interpretazione. Successivamente abbiamo sottolineato che la variabilità dei redditi è direttamente connessa all’intervallo di confidenza fissato per le funzioni di distribuzione rappresentanti variabili aleatorie durante il calcolo della variabilità attesa della VIE. Il potenziale impasse si potrebbe allargare qualora differenti stakeholders dovessero usare un modello di stima diverso della VIE che potrebbe portare a risultati, seppur diversi, ugualmente accettabili secondo le prescrizioni di questa interpretazione. L’introduzione di definizioni quali EXLS/EXRR, precedentemente non parte dei principi US GAAP, crediamo necessitino di una più robusta trattazione teorica. Per fare questo abbiamo caratterizzato anche la scelta del saggio di sconto che FASB indica come il tasso privo di rischio. In questo contesto abbiamo preso come base la teoria del costo del capitale per poi evidenziare i punti deboli e quelli di forza di alcuni metodi quali l’equivalente certo, il metodo del costo del capitale e quello della probabilità corretta per il rischio (risk adjusted probability). Abbiamo quindi dato evidenza alle ragioni per cui FASB dovrebbe usare il metodo del costo del capitale che è dato dal tasso di sconto impiegato per calcolare la variabilità del reddito derivante dall’attualizzazione dei flussi di reddito. Infatti, usando il metodo del costo del capitale, il WACC derivante dall’implementazione del CAPM sconta tutto il rischio finanziario nel tasso, lasciando all’impresa libertà di esprimere nei libri contabili, e quindi nei flussi di reddito corrispondenti, il rischio operativo che è invece affine all’attività di impresa e reporting. Al giorno d’oggi il costo marginale del debito e il valore di mercato del capitale azionario sono concetti consolidati nella pratica contabile e possono essere estesi a imprese private. Il costo del capitale per queste ultime deriva dall’uso del coefficiente di correlazione degli utili d’impresa su quelli di mercato (coefficiente beta) di difficile stima per aziende private, sebbene questo possa essere ricavato in più di un modo, implementando ipotesi che sono proprie del contesto dove l’impresa e i suoi concorrenti operano. Abbiamo riassunto i modelli emergenti dal modo come queste metodologie vengano correntemente impiegate dalle imprese americane, realizzando che i sentimenti connessi all’adattamento dell’interpretazione FIN 46/R alle caratteristiche proprie dell’impresa siano di timore e incertezza dati da una notevole difficoltà di applicazione compresa quella di estrapolare un sufficiente grado di rilevanza ai fini del valore dai propri eventi contabili. La situazione é prodroma di processo ancora lontano dalla cristallizzazione. In particolare FASB non impone una chiara conversione dei valori contabili in fair value oppure in value in use. Nemmeno sono esclusi metodi alternativi di valutazione a quelli menzionati di sopra se non fosse per alcuni aspetti trattati dall’FSP 46/R-S nell’esercizio di determinare la variabilità attesa degli utili che dobbiamo riconoscere non è stata propria della contabilità fino a poco tempo fa. Per entrare in dettaglio nel processo applicativo di identificazione di una VIE questa tesi propone un algoritmo che entra in dettaglio nell’applicazione del FIN 46/R da parte di un’impresa e tiene in considerazione tutte le possibili interrelazioni tra portatori di interessi nella VIE e/o solamente in specifici asset della stessa. L’algorimo pone in luce le debolezze sul piano applicativo causate da possibili interrelazioni tra la stima delle perdite attese e interessi in asset specifici, laddove il fair value di questi sia superiore al 50% del capitale investito netto. L’algoritmo, nonostante sia in accordo con le prescrizioni dettate dal FIN 46/R, essendo di tipo causa-effetto non affronta situazioni di cross-default di parti correlate con investimenti nella stessa VIE. Benchè l’applicazione di un modello causa-effetto non sia sempre possibile, pensiamo che un aumento dei vincoli che portano al consolidamento riduca ampiamente queste possibilità di difficile modellizzazione. Nel processo per la determinazione se l’impresa sia o meno una VIE, FASB sviluppa un test ‘at-risk’ che contiene a nostro avviso alcuni passi nella propria trattazione di relativa debolezza quali ‘precedente abilita a finanziare le attività senza supporto finanziario subordinato’ e ‘ confrontabilità con simili entità che autonomamente si finanziano senza supporto finanziario subordinato’. Crediamo che questo test ‘at-risk’ dovrebbe essere solamente un test di tipo numerico per appianare qualsiasi fonte di erronea interpretazione ed incrementarne quindi la rilevanza e consistenza. L’introduzione di FASB di una condizione sufficiente da applicare ad una entità per la sua esclusione dalla categoria delle VIE lascia a nostro avviso alcune incertezze nell’interpretazione del concetto di ‘partecipazione nella definizione della VIE’ o in quella di ‘interesse trascurabile’. Questo test crediamo non debba essere trattato come un fattore determinante; la polarizzazione tra rischio e rendimento invece crediamo debba essere il fattore primario per l’esclusione o meno. Per quanto riguarda le condizioni in uso per determinare se l’entità ha sufficiente capitale per sostenere le proprie attività senza sostegno finanziario, conditio sine qua non del 10% di equity sul capitale investito netto, accoppiata ad una triade di metodi valutativi sempre proposti da FASB, pensiamo avesse dovuto essere maggiormente concisa e vincolante nelle sue pronunciazioni. Infatti siamo dell’opinione che questi metodi lascino troppa flessibilità interpretativa circa l’uso delle ipotesi concesse per dimostrare la sufficienza del capitale investito. Questi temi sono stati trattati dal punto di vista operativo con una serie di esempi creati ad hoc per illustrare i passi più significativi, dal punto di vista finanziario, nell’applicazione del VIE model e sollevare potenziali criticità proponendone una loro soluzione. Infine, questa tesi confronta come le responsabilità e gli sforzi nell’affrontare le disposizioni del FIN 46/R siano distribuite tra gli stakeholders di una VIE, cioè imprese che redigono il bilancio, parti correlate, revisori, standard setters ed enti di controllo. Abbiamo messo in evidenza come l’implementazione del FIN 46/R spinga naturalmente ad una sovrastima della variabilità stimata degli utili, innalzando i requisiti di capitalizzazione in accordo con questo modello di rischio/rendimento. Questo a svantaggio di beneficiari primari di modeste capitalizzazioni, che dovranno affrontare sia il rischio di essere acquisiti che quello di un maggiore ricorso al debito. Le classi più avvantaggiate saranno invece il settore del credito, seppure lo stesso sarà portato internamente verso il consolidamento.
XXI Ciclo
1972

Uma crítica que corrobora a não convergência entre o Financial Accounting Standards Board (FASB) e o International Accounting Standards Board (IASB) baseia-se na discordância quanto a mensuração a valor justo de alguns tipos de instrumentos financeiros, pois argumenta-se que essa prática pode aferir volatilidade aos resultados das empresas, o que impactaria o desempenho de suas ações no mercado de capitais. Assim, o presente trabalho propõe-se a verificar se a adoção das International Financial Reporting Standards (IFRS) no tocante a mensuração e reconhecimento dos instrumentos financeiros, mais especificamente para o grupo classificado em \"Ativos e Passivos Financeiros Mensurados a Valor Justo por meio do Resultado\", levou a uma maior volatilidade dos resultados contábeis. Para isso, optou-se por analisar o caso brasileiro, porque tal país passou pelo processo de Full Adoption das IFRS. Desse modo, adotou-se testes estatísticos que analisaram a diferença entre as variâncias dos lucros líquidos que consideram instrumentos financeiros avaliados a valor justo e a custo histórico amortizado, no período entre 2010 e 2016, das empresas brasileiras de capital aberto não financeiras e bancos com maior Presença em Bolsa. Após analisar o efeito dos ganhos e perdas não realizados, oriundos do ajuste a valor justo, de instrumentos financeiros sob o resultado, constatou-se uma tendência a suavização, redução da volatilidade, dos lucros líquidos, tanto para a amostra de empresas não-financeiras quanto para a de bancos, e não de aumento da volatilidade como era argumentado por alguns críticos a adoção do valor justo. Com base nas análises da amostra de empresas não-financeiras, o reconhecimento do ajuste a valor justo de instrumentos financeiros no resultado afetou significativamente a volatilidade do resultado contábil, contudo, segundo essas analises não se pode afirmar quanto ao efeito desse impacto, se houve propensão ao aumento da volatilidade ou a suavização dos lucros. Ao realizar as análises descritivas dessa amostra, observou-se um efeito de suavização na média, uma vez que o desvio-padrão do lucro líquido que considera instrumentos financeiros avaliados a valor justo apresentou uma média e um desvio-padrão inferiores ao do desvio-padrão do lucro líquido que os considera a custo histórico. Já as análises da amostra de bancos evidenciaram que o reconhecimento do ajuste a valor justo de instrumentos financeiros no resultado tendeu a reduzir significativamente a volatilidade, observando-se em média uma suavização do resultado contábil. Essa tendência a redução da volatilidade pode ser advinda de: gestões de risco responsáveis; uso de instrumentos financeiros, predominante, para fins de hedge; uma provável escassez do uso da classificação de \"instrumentos financeiros avaliados a valor justo por meio do resultado\"; ou, gestões que realizem escolhas do tipo \"cherry-pincking\". Inclusive, um dos modelos aplicados identificou, em ambas amostras, indícios da realização da prática de \"cherry-pincking\", um tipo de gerenciamento de resultado baseado em escolhas operacionais vantajosas e oportunistas que têm consequências na classificação contábil. Além disso, tal tendência a redução da volatilidade pode apresentar um impacto positivo na avaliação dessas empresas pelo mercado de capitais e por seus credores, já que tais usuários primários da informação contábil apresentam uma preferência por lucros consistentes ao longo do tempo, devido a sua aversão ao risco
One of the criticisms that supports the non-convergence between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) is based on disagreement with the measurement at fair value of certain types of financial instruments, because it is argued that this practice can measure volatility to earnings, which would impact the performance of its shares in the capital market. Thus, this study aims to verify whether the adoption of standards International Financial Reporting Standards (IFRS) regarding the measurement and recognition of financial instruments, specifically for the group classified as \"Financial Asset or Financial Liability at Fair Value through Profit or Loss\" or \"Held for Trading\", caused greater volatility of earnings. For this, we chose to analyze the Brazilian case, because that country passed through the Full Adoption of IFRS process. Accordingly, it adopted statistical tests that analyzes the difference between the variances of the net incomes that consider financial instruments measured at fair value and amortized historical cost of Brazilian publicly traded non-financial companies and banks, with a greater Presence on the Stock Market, during the period between 2010 and 2016. After analyzing the effect of the unrealized gain and loss, resulting from the adjustment to fair value, of financial instruments recognized in net income, there was a tendency to income smoothing, reduce volatility, both for non-financial companies and for banks, rather than increased volatility as some critics argued the adoption of fair value. Based on the analysis of the non-financial companies sample, the recognition of the fair value adjustment of financial instruments in the result significantly affected the volatility of the accounting profit, however, according to these analyzes, it cannot be stated as to the effect of this impact, if there was a trend increasing volatility or smoothing profits. When conducting the descriptive analyzes of this sample, a smoothing effect was observed in the mean, since the standard deviation of the net profit that considers financial instruments evaluated at fair value presented a mean and a standard deviation lower than the standard deviation of the net profit that considers them at historical cost. The analysis of the banks sample showed that the recognition of the adjustment to fair value of financial instruments in the result tended to significantly reduce the volatility, observing, on average, a smoothing of the accounting profit. This trend to reduce volatility can be derived from: responsible risk management; use of financial instruments predominantly for hedge purposes; a probable shortfall in the use of the classification of \"financial instruments measured at fair value through profit or loss\"; or, cherry-pincking choices. In addition, one of the applied models identified, in both samples, indications of the practice of cherry-pincking, a type of result management based on advantageous and opportunistic operational choices that have consequences in accounting assignment. Furthermore, this trend of reducing volatilitymay have a positive impact on the valuation of these companies by the stock markets and by their creditors, since such primary users of accounting information show a preference for consistent profits over time due to their risk aversion

A major feature of International Financial Reporting Standards (IFRS) is the use of fair value accounting for financial assets and liabilities. IFRS 7 requires reporting entities to disclose fair values based on a ‘Three-Level’ hierarchy in order to provide financial statement users with useful information about valuations, methodologies and the uncertainty associated with fair value measurements. Level 1 and Level 2 measurements include observable and indirectly observable inputs such as quoted prices of identical or comparable assets or liabilities from active markets. However, Level 3 measurements include unobservable inputs computed by using price models or discounted cash flow methodologies or other information reflecting the reporting entity’s own assumptions and judgments. Research results generally confirm that managers use the discretion provided under fair value accounting opportunistically to increase firm performance and cash flows (Chong et al., 2012; Fiechter and Meyer, 2010; Henry, 2009), to smooth earnings volatility (Barth et al., 1995; Hodder et al., 2006; Li and Sloan, 2015), to meet analysts’ forecasts (Song, 2008) and to increase management compensation (Ramanna and Watts, 2009; Dechow et al., 2010; Shalev et al., 2013; Livne et al., 2011). Barth and Taylor (2010) call for more research to investigate the role of discretion in fair value estimates. Using the language of the fair value measurement hierarchy, Level 3 inputs are discretionary in nature. However, the incentive of bankers to use Level 3 inputs remains an empirical question.
Thesis (PhD Doctorate)
Doctor of Philosophy (PhD)
Griffith Busines School
Griffith Business School
Full Text

This diploma thesis deals with the issue of fair value measurement of tangible long-lived assets under IAS/IFRS. It is objective is to assess the impact of revaluation of long-lived assets from their historical prices to their fair value. The work further characterizes the harmonization of the accounting systems and detailed described IFRS 13 – Fair Value Measurement. The work is focused on company describing particular the valuation methodology as well as specific data on the asset. At the end of the work the potential risks of users of the financial statements are displayed.

During the financial crisis, many assets became illiquid and ceased trading on the open market, thus classifying them as level three assets. This study attempts to determine whether fair value asset disclosures, especially level three assets, were viewed by the market as valued correctly, given the amount of subjectivity involved. This paper will discuss prior literature on the topics of fair value accounting, various earnings quality measures, and corporate governance impact on fair value disclosures. Using models similar to prior papers, many of the coefficients of interest proved insignificant. However, the models improved when examining only the least credible firms.

The process of business combinations is closely linked to measurement. International Financial Reporting Standard IFRS 3 Business Combinations contains a large part focused on measurement. Measurement in business combinations can be divided into three areas, which are the measurement of the acquiree's identifiable assets acquired and liabilities assumed, the measurement of non-controlling interests and the measurement of goodwill or gain from a bargain purchase. The measurement of the acquiree's identifiable assets acquired and liabilities assumed is associated with the measurement principle, which states of fair value measurement. In the case of measurement of non-controlling interests, there are two measurement options - fair value measurement and proportionate share measurement. The measurement of goodwill or gain from a bargain purchase is related, among other things, to the measurement of non-controlling interests, which has a direct impact on it. The aim of the paper is to analyze measurement in business combinations with a focus on speculative measurement, which may occur in business combinations. Measurement analysis is focused on the results of practical examples in individual areas of measurement with subsequent comparison and summary.