The Value Relevance of Fair Value Accounting to Market ReturnsAround the world, financial statements are prepared to be interpreted by internal and external users. Traditionally, the view on accounting and its role differ around the world1. This variation can be due to culture, legal or economic reasons. Traditionally there is a difference between the Anglo-Saxon parts of the world and continental Europe. To generalize, accounting regulations in the Anglo-Saxon countries is focused on informing outside investors, giving grounds for investment decisions. The regulations in continental Europe is more focused on being precise and stabile, and to ensure the rights of creditors and governments2.
Practical application of accounting principles and technical concepts
The main focus of current and future policy is on the effective conduct of monetary policy. However, we cannot see financial market, financial policy and business governance as the basic factors in financial outcomes. As of May 2013, the EU and its member states had adopted a framework for assessing risk. We have published an overview of the EU financial policy guidance to financial advisors, guidance for the use of various accounting principles, and technical concepts. A number of different concepts were developed, but those concepts are mostly in service to current and future policy and economic policies.
Financial statements
We are aware that the financial statement in the current and future policy are difficult to use in order to be helpful. We know that some financial statements are prepared and published in a variety of different formats. The current and future policy provides advice to financial advisors on how to read or process a financial statement. For any financial information that is not in the current period, you should not use financial statements in the current policy. We would be surprised if the current and future policy is applicable only to financial industry entities (e.g., pension funds, government bonds, private equity and credit union companies) and have not applied current policy. This is because most issuers of such statements must comply with the financial reporting requirements of the Bank of England and the Financial Conduct Authority.
The Financial Statement Directive, which has become a common UK legislative body, proposes that financial statements can be prepared. Under the directive (A/TS/2017082/EC, 17 July 2012), financial statements should conform to the requirements described in Article 2(b) of Directive 1999/1166/EC, as amended. The financial statement will not make inferences from any data points. Please see ‘What is the financial statement’?
The decision to prepare financial statements for a particular situation is based upon the opinion of the market and investors. Therefore, we do not believe that an accurate statement of financial information should be made with respect to general financial issues to be evaluated. Information presented in a financial statement does not necessarily indicate that the financial position is correct.
We use a number of statistical and statistical methods to compare the performance of the data used within the financial statement by an individual, by a firm or by a third party. We do not undertake statistical analyses to determine the performance of our financial statements.
In addition to financial statements, there are also other financial statements that we do not conduct as financial documents. Financial statements for non-performing securities transactions (including non-bank derivative transactions) use the same data set as those for other financial statements, although they are no longer in use. Consequently, these data sets are not representative of the financial information to be used by the financial advisors of financial organisations.
The International Accounting Standards Board (IASB) aims at minimizing these differences3. To achieve this, the IFRS framework was introduced for listed companies within the European Union in 20054. The implementation of IFRS 2005 posed several new things, such as fair value accounting for real estate and biological assets. The framework has been criticized for being too detailed in its recommendations, and for putting to much focus on market values. It has been argued that the fair value regulations are a movement towards a more Anglo-Saxon type of accounting, and that increased focus on market values could imply a risk of increased arbitrariness5. Critics also claim that the fair values stipulated in the framework was one of the reason for the sharp shift in the economy following the financial crisis during 20086.
The IFRS 2005 guidance does not address any of the most important issues that may be raised in the implementation of IFRS 2005.
For example, many of these were:
• the extent to which new accounting standards were introduced to assist in the interpretation of fair value data on commercial, residential, industrial and other properties.
• the degree to which some accounting standards were tightened to incorporate foreign-exchange factors when reporting the net income of a company.
• how to use the IFRS 2005 guidance to determine the fair value of non-exempt assets, or non-exempt non-income, which were not covered by the financial statement.
• how to use the IFRS 2012 guidance to determine the fair value of non-exempt assets.
• what the IFRS 2014 guidance does not address about certain business structures and businesses and any possible implications of the changes that are expected to occur.
In the end, it is important to make it easy for business owners to identify the fair value of certain assets, or to apply their own assessments when the fair value information they need is difficult to obtain. The current guidance (and therefore the guidance that is to be applied to certain entities in the future) does not adequately deal with the risk associated with obtaining that information from business owners. For example, if a company’s accounting results are highly suspect even with knowledge of their financial statements, it may fail to collect income information when asked to pay tax, although the company might be able to pay tax only once a year. As of June 2017, only information supplied by the Department for Business Development, the Finance Department, or other agencies and bodies is available. The Department for Business Development, the Finance Department, or other agencies and bodies are responsible for ensuring that all information about their finances is considered and made available in accordance with the law. If a company seeks to obtain a business-related deduction for losses, or to make a claim for loss-related deductions, these agencies and bodies may also conduct business-related checks before it receives income for the period of income. If this information is provided, it may be used by the financial information service such as a website to manage information in the public market, or possibly by a third party.
The current guidance does not address any issues with the data reported below the fold, which are not related to income or business. It also includes issues relevant to an entity’s relationship to an entity’s business, which may include income-related deductions for interest and dividends, dividends reinvested as tax exempt, dividend payments to shareholders, and so on. This does not address any of the issues that other federal, state and provincial agencies may be interested in. Other important questions include, in particular, whether the fair values of investments within a company are appropriate and where the company needs to be regulated more carefully.
For the purposes of this review, the Fair Value of Certain Transactions and Other Accrued Employment and Other Income Tax (YUSI) Statement (FVCITI) contains one of the four categories of fair value agreements—
FVCITI: Non-transferable, including: amounts paid, commissions, commissions received, wages paid
YUSI: Income derived upon the sale or sale of a stock
F
The IFRS 2005 guidance does not address any of the most important issues that may be raised in the implementation of IFRS 2005.
For example, many of these were:
• the extent to which new accounting standards were introduced to assist in the interpretation of fair value data on commercial, residential, industrial and other properties.
• the degree to which some accounting standards were tightened to incorporate foreign-exchange factors when reporting the net income of a company.
• how to use the IFRS 2005 guidance to determine the fair value of non-exempt assets, or non-exempt non-income, which were not covered by the financial statement.
• how to use the IFRS 2012 guidance to determine the fair value of non-exempt assets.
• what the IFRS 2014 guidance does not address about certain business structures and businesses and any possible implications of the changes that are expected to occur.
In the end, it is important to make it easy for business owners to identify the fair value of certain assets, or to apply their own assessments when the fair value information they need is difficult to obtain. The current guidance (and therefore the guidance that is to be applied to certain entities in the future) does not adequately deal with the risk associated with obtaining that information from business owners. For example, if a company’s accounting results are highly suspect even with knowledge of their financial statements, it may fail to collect income information when asked to pay tax, although the company might be able to pay tax only once a year. As of June 2017, only information supplied by the Department for Business Development, the Finance Department, or other agencies and bodies is available. The Department for Business Development, the Finance Department, or other agencies and bodies are responsible for ensuring that all information about their finances is considered and made available in accordance with the law. If a company seeks to obtain a business-related deduction for losses, or to make a claim for loss-related deductions, these agencies and bodies may also conduct business-related checks before it receives income for the period of income. If this information is provided, it may be used by the financial information service such as a website to manage information in the public market, or possibly by a third party.
The current guidance does not address any issues with the data reported below the fold, which are not related to income or business. It also includes issues relevant to an entity’s relationship to an entity’s business, which may include income-related deductions for interest and dividends, dividends reinvested as tax exempt, dividend payments to shareholders, and so on. This does not address any of the issues that other federal, state and provincial agencies may be interested in. Other important questions include, in particular, whether the fair values of investments within a company are appropriate and where the company needs to be regulated more carefully.
For the purposes of this review, the Fair Value of Certain Transactions and Other Accrued Employment and Other Income Tax (YUSI) Statement (FVCITI) contains one of the four categories of fair value agreements—
FVCITI: Non-transferable, including: amounts paid, commissions, commissions received, wages paid
YUSI: Income derived upon the sale or sale of a stock
F
Fair value accounting is described in the standards IAS 39 – Financial Instruments: recognition and Measurement, IAS 40-Investment Property and IAS 41- Agriculture. These prescribe the accounting treatment of financial, real estate and biological assets respectively. They state that assets recognized according to these standards should be measured at fair value, and that the fair value should reflect market conditions at the end of the reporting period7.