Munich Personal RePEc Archive
Legitimacy to develop fair value measurement standards: The Case of the IVSC Discussion Paper – Determination of fair value of intangible assets for IFRS reporting purposes
Deaconu, Adela, Nistor, Cristina Silvia and Filip , Crina Babes Bolyai University of Cluj-Napoca, Faculty of Economics and Business Administration
Online athttp://mpra.ub.uni-muenchen.de/16850/ MPRA Paper No. 16850, posted 18. August 2009 / 13:00
LEGITIMACY TO DEVELOP FAIR VALUE MEASUREMENT STANDARDS THE CASE OF THE IVSC DISCUSSION PAPER – DETERMINATION OF FAIR VALUE OF INTANGIBLE ASSETS FOR IFRS REPORTING PURPOSES Deaconu Adela, Babeş-Bolyai University, Cluj-Napoca, Romania Nistor Cristina, Babeş-Bolyai University, Cluj-Napoca, Romania Filip Crina, Babeş-BolyaiUniversity, Cluj-Napoca, Romania
ABSTRACT This research studies, through a content analysis of the comment letters to the IVSC project on fair value determination of intangible assets, the legitimacy of this professional body, or of the accounting associations, to develop measurement standards specific to this accounting concept. At present, with the exception of FAS 157, no professionalstandard offers clear technical solutions for fair value determination for financial reporting purposes. We have come to the conclusion that, among respondents, accountants are more reserved than valuators in what regards the IVSC regulating of the fair value measurement. The Anglo-Saxon respondents are more open to accept the IVSC DP as compared to respondents from other countries, hence the IVSClegitimacy to develop fair value measurement standards. Generally, we consider that accounting bodies, rather than valuation bodies, should have legitimacy to develop fair value measurement standards. Keywords: fair value, professional standards, valuation techniques, guidance, project acceptation, value hierarchy 1. INTRODUCTION Fair value has been approached in the accounting literature, standardsand regulations from a conceptual, methodological point of view, while also having in mind its effects. The literature focused mainly on the contribution of the fair value to the quality of the accounting information, on its advantages and disadvantages, especially in comparison with the concept of historical cost. Although the aim of this paper is not related to such a discussion, we offer anexample regarding the arguments for using fair value for financial reporting purposes. Fair value is more value relevant, it reduces the agency costs, it develops managerial efficiency, and it ensures the disclosure of complete and transparent information (Barlev and Haddad, 2002). Hereinafter, we focus on the involvement of the regulatory bodies in clarifying the concept, especially the valuationrules for financial reporting purposes. In this context, we refer both to accounting and valuation associations. The first type of assets measured at fair value was financial instruments, and the need to evaluate them is mainly identified in the economies that use the capital market as a finance source. This is the case of the American economy and this is the reason why we find here most of theregulations regarding the methodology of fair value measurement issued by accounting regulators, such as the Securities and Exchange Commission (SEC). In spite of the existence of a series of standards issued by the FASB in the last decades and of some SEC regulations, there is still a search for better solutions related to the measurement of financial instruments and other assets, since correct fairvalue measurement is highly important. In this respect, investment funds and long term investments represent a challenge, as their undervaluation or overvaluation influence the fund asset base and the related interests (Kraft, 2005). SEC is more and more involved in the methodology for determining fair value and tries to identify the factors to be considered when choosing the valuation method....