Search results for "FAIR VALUE"
showing 10 items of 18 documents
Changes in the value relevance of goodwill accounting following the adoption of IFRS 3
2014
Abstract This study examines the value relevance effects of changes in goodwill accounting in a European setting. International Financial Reporting Standard (IFRS) 3 replaced accounting rules that emphasized goodwill amortization over short useful lives which kept goodwill balances low. Goodwill accounting under IFRS 3 largely relies on manager fair value estimates of acquired business units. Using Swedish data, we show that goodwill amortizations were not value-relevant prior to the adoption of IFRS 3. However, impairments reported in addition to amortization were significantly related to stock returns during that period. In contrast, under the impairment-only regime prescribed by IFRS 3, …
Empirical evidence of the effect of European accounting differences on the stock market valuation of earnings and book value
2002
Recently, a new dimension has been added to research in accounting harmonization by studying the effects of accounting practices and regulations on share price and return movements. Although there is an agreement of mutual recognition in the European stock markets of financial statements adapted to the directives, the differences between the European countries are still great. The objective of this study is to investigate the value relevance of alternative accounting measures (earnings and book value) constructed under different accounting systems in Europe. We investigate the differences in accounting practices through the relationship between earnings and book value, and the stock market …
How fair-value accounting can influence firm hedging
2012
Published version of an article in the journal: Review of Derivatives Research. Also available from the publisher at: http://dx.doi.org/10.1007/s11147-012-9084-y The potential influence of accounting regulations on hedging strategies and the use of financial derivatives is a research topic that has attracted little attention in both the finance and the accounting literature. However, recent surveys suggest that company hedging can be substantially influenced by the accounting for financial instruments. In this study, we illustrate not only why but also how the accounting regulations may affect hedging behavior. We find that under mark-to-market accounting, most firms concerned with earnings…
Pricing the Option to Surrender in Incomplete Markets
2010
New international accounting standards require insurers to reflect the value of embedded options and guarantees in their products. Pricing techniques based on the Black and Scholes paradigm are often used; however, the hypotheses underneath this model are rarely met. We propose a framework that encompasses the most known sources of incompleteness. We show that the surrender option, joined with a wide range of claims embedded in insurance contracts, can be priced through our tool, and deliver hedging portfolios to mitigate the risk arising from their positions. We provide extensive empirical analysis to highlight the effect of incompleteness on the fair value of the option.
Conceptual framework and measurement: A survey on the international debate
2015
In response to the ‘2011 Agenda Consultation’, the IASB launched in July 2013 a call for a new Discussion Paper on the ‘Conceptual Framework for Financial Reporting’. This article aims to offer a contribution to the debate on the effectiveness of the theme of ‘Measurement’, by investigating the use of the current evaluation models in the literature and practice of Financial Reporting. The article proposes at first a historical survey both of the international debate on Fair Value Accounting vs. Historical Cost Accounting and of the Italian theories on the valuation. Later the paper proposes some considerations about the key questions related to Measurement and the possible policy implicatio…
Equity valuation in practice: The influence of net financial expenses
2014
Abstract This study investigates the relevance of net financial expenses with respect to equity valuation in an IFRS accounting regime. According to the residual earnings valuation model, income related to balance sheet items that are recorded at fair value is not applicable for valuation purposes. There are no residual earnings associated with these items because the balance sheet provides ‘perfect’ value estimates for the items in question. In accordance with the contention that under IFRS, aggregate net financial liabilities are recorded at a book value that is close to fair value, this study demonstrates that net financial expenses are not associated with the market prices of stocks. Th…
Revenues from related Parties Transactions and UEFA Financial Fair Play. The Search for an Alternative Solution to Fair Value Measurement for the Bre…
2014
Transactions with related parties (RPTs) are numerous and frequent in the economy of companies; they are often made with different values from the ones in arm’s length transactions, and sometimes for opportunistic reasons. Many cases of RPTs occur in the football sector too, and they are mostly related to sponsorship contracts revenues. Through the financial fair play regulations, UEFA encourages the clubs which want to get the license for competing in European tournaments, to count on their capability to operate on the basis of their own revenues. The reorientation of the professional football clubs economic governance requested by UEFA also provides specific RPTs disclosure as well as the…
Application of Operator Splitting Methods in Finance
2016
Financial derivatives pricing aims to find the fair value of a financial contract on an underlying asset. Here we consider option pricing in the partial differential equations framework. The contemporary models lead to one-dimensional or multidimensional parabolic problems of the convection-diffusion type and generalizations thereof. An overview of various operator splitting methods is presented for the efficient numerical solution of these problems.
Hedge Effectiveness Testing as a Screening Mechanism for Hedge Accounting
2014
Accounting for financial instruments has been subject to much controversy, particularly accounting practices related to derivatives held for hedging purposes. For cash flow hedges, poor matching may result when fair-value accounting is prescribed for the hedging instrument and historical cost is prescribed for the assets that generate the “highly probable forecast transaction” to be hedged. Fair-value accounting may therefore induce excess variations in earnings, which could make a firm appear to be more risky than it actually is. The alternative to fair-value accounting offered by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to fi…
Have IFRS changed how stock prices are associated with earnings and book values?
2015
Purpose – The purpose of this paper is to examine how the mandatory shift from Norwegian Generally Accepted Accounting Principles (NGAAP) to International Financial Reporting Standards (IFRS) in Norway affected the valuation weights of earnings and book values, with the aim of gaining insights that are relevant for standard setters, investors and other users of accounting information. Design/methodology/approach – The authors extend the IFRS literature on structural shifts between the pre- and post-adoption periods by comprehensively controlling for factors that vary between the IFRS sample and the domestic Generally Accepted Accounting Principles (GAAP) sample. Moreover, the tests are des…