The Measurement Approach to Decision Usefulness参考.ppt

* * Fair value is a market-based measure Fair Value = Exit Price? * Three Tiers of Fair Value Tier 1 Market Price of identical assets/liabilities Tier 2 Market price of the similar items Tier 3 Present value of future cash flows of the item, or any other best available information about how a market participant holding the item would value the item * Why Exit Price? More objective if well-working market exists If well-working market does not exist Tier 3 fair value will be used; in such case Both exit price and VIU are subject to estimation errors and management bias. However, exit price is believed to be more reliable Exit price: PV of FCF the market would expect Value in use: PV of FCF the entity would expect * Criticism to Exit Price Exit price is a good proxy in many scenarios to determine fair value; however Exit price may not be representative in all scenarios Auction sale Exit price is the next best bid Asset bought yesterday * Why Fair Value? Recalled what we learned in Ch6 Market inefficiency Low R-square problem (historical costs) Clean surplus theory Auditors’ liability * Why Fair Value (Cont’d)? It is asserted by FASB and IASB that “in some cases fair value meets the conceptual framework criteria better than other measurement bases considered”. (Barth 2007) Objectives: decision usefulness Qualitative characteristics: relevance; faithful representativeness; unbiased, neutral, timely Elements: definition of assets and liability * Criticism of FVA Lack of a clear definition of fair value Lack of verifiability The ability for management to affect fair value estimates Volatility of market price Increasing costs to produce FVA information * Fair Value: Future Direction Standard setters continue to increase fair value measurements in financial statements IASB standards more likely than FASB to allow write-ups Accountants are recognizing an increased obligation to measure and report on firm risk In recent years, increasing concerns on this trend A cal