Løsningen på Fair Value Measurement problemet

Henrik Ahm & Yahya Ibrahim

Student thesis: Master thesis


The main concern of the Thesis is to discuss if the reporting entity should elect the asset-oriented paradigm rather than the performance-oriented paradigm if the draft IFRS from IASB is adopted in its present form. The use of fair value measurements are a relevant topic within the accounting industry. Experts in the area believe that the most appropriate method for presentation of assets and liabilities and measurement hereof is the fair value method or historic cost price method. However, there are material differences between the two methods of measurement. The theories are described in the Thesis and advantages and disadvantages have been identified in relation to the qualitative characteristics of financial information. In our review of the two accounting paradigms, performance-oriented accounting theory with historic cost price as recognition method and asset-oriented accounting theory with fair value method as method of measurement, it was identified that the former has more focus on the income statement while the latter has more focus on the balance sheet, and that the accounting objectives therefore are different – namely either total income or earnings capacity. It appeared that the fair value method is the most relevant method for the decision makers as the assets in the financial statements are measured regularly, and the information is more forwardlooking and relevant. The historic cost price method is the most reliable method because assets are recognized when the asset is exchanged in an actual transaction between market participants. The fair value method recognizes currently increases or decreases in value in the financial statements, based on more or less subjective assessments, since the asset has not been exchanged in an actual transaction, and it will therefore lead to less reliable financial statements. In order to deal with the above issue of the fair value measurements, the international accounting board IASB has prepared a draft standard for the purpose of specifying the definition of fair value and attaching guidelines hereto, and to improve information about assets and liabilities measured at fair value. The draft standard has been reviewed for the purpose of looking at its content and to establish whether the standard contribute to making useful accounting information for making economic decisions. Whether this is the case, has been illustrated by identifying and assessing the advantages and disadvantages of the content in relation to the qualitative characteristics of the financial information. We have identified that the draft standard for fair value measurement to a high degree has focus on how the reliability of fair value measurements can be enhanced. IASB increases the reliability of fair value measurements through primarily two focus areas; observability and presentation. By increasing the observability of the fair value measurements, the financial information is made more neutral and come across as an event that is more externally ascertainable. The reliability of the fair value measurements is increased by presenting more information. The presentation of information should reduce the uncertainty attached to fair value measurements. The uncertainty is reduced by giving the users of the financial statements a broader basis for assessing the prudence of the assessments made by management in the measurement of the fair value. Interviews with accounting experts have confirmed the results of the theoretical review. The accounting experts agree that the standard will increase the reliability of the financial information, but that in some cases a more relevant alternative could be used in relation to the decisions in the draft. Therefore, the overall question whether the reporting entity should use the asset-oriented paradigm rather than the performance-oriented paradigm, if the draft new IFRS from IASB is adopted in its present form, we can partially answer Yes, as there is still room for improvement.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2010
Number of pages131