Research On The Status And Causes Of Fair Value Application

Reviewing the history of accounting, the origin of accounting can be traced back to the period of keeping records by tying knots. As society’s progress, the accounting was also developing. No matter double-entry bookkeeping records in the early years or today’s providing information for users through the financial reports, accounting measurement is the core of the entire accounting system. Because the historical cost is more reliability, verifiability, and is easy to get, historical cost has always held a dominant position in the accounting measurement for a long period of time. However, the historical cost reflects historical trading price, which inevitably leads to the low relevence. After American savings-and-loan crisis in1980s, the inherent limitations had been exposed thoroughly. The financial reports basis on historical cost failed to warn risks for investors and regulators, but misled investors that the operating results of those financial institutions on the brink of bankruptcy were "good", the financial situation was "health". After the crisis, the American academics began to introspect the dominance of the historical cost, and tended to use fair value which was related to decision-making more closely to measure the assets and libilities. Since1990s, the fair value measurement has got systemetic development,and had the intention to replace the historical cost to the first accounting measurement attribute. However, due to the uncertainty of the fair value, the controversy around the fair value has never stopped since the date of its birth. A sweeping global financial crisis in2008has pushed the controversy to the vertex. Although the fair value has been seriously questioned, the SEC still supported the fair value. It was thus clear that the application of fair value measurement model has became an irreversible trend of historical development.Compared with the continuous application of the fair value in foreign countries, the application in our country was full of twists and turns. From the issue of the first accounting standards in1992, the application of fair value in our country experienced four periods, which were "not using-trying to use-evading to use-wide using". At the request of the international convergence, the new accounting standards were issued in2006, including a total of17specific standards relating to the application of fair value. As the IASB issued IFRS13"fair value measurement", Chinese Ministry of Finance also released the "Accounting Standards for Business Enterprises×number-measured at fair value [exposure draft]" in May2012. However, as mentioned by Liu yuting, the implementation of accounting standards are more critical than making. Up to new, five years have been past since the new accounting standards began to perform. The recognition of fair value in practice, the application status and existing problems are worthy of serious study. Especially in the post-crisis era, how to make more efficient application of fair value measurement is more worthy of the contemplation of the theory and practice. From the current academic research as well as interviews for the practitioners, fair value in our country has not been effectively applied. Convergence between China and the international financial reporting standards just completed the "convergence of form","convergence of practice" still needs a long time. Therefore, what is the reason of enterprises on the application of fair value choice is concerned.Based on the background, the status and causes of fair value application will be researched in this paper. On the one hand, this paper uses the methods of the questionnaire survey and annual report data analysis to discuss the present situation of fair value application in listed companies of Sichuan Province. On the other hand, combined with the accounting policy choice theory of motivation, this paper conducts an investigation of80listed companies in Sichuan Province through a questionnaire survey. Then this paper finds the main causes for the application of the fair value by the exploratory factor analysis, and further explored the relationship between the main causes:This paper includes six chapters:Chapter One:Introduction. This paper introduces the research background and significance, research framework and content arrangements, the innovation and contribution;Chapter Two:Literature review. From two aspects of the fair value and accounting policy choice, this paper reviews and analyses the existing literature at home and abroad. After that, this paper summarizes the shortcomings in the fair value research of China, especially the shortcomings in the study of causes for the application of the fair value. Based on above description, this paper proposes possible research directions;Chapter Three:Analysing the basic theory of fair value Respectively, this paper introduces the definition of fair value, the measurement of the classes and methods as well as the history of the application of fair value at home and abroad, summarizes the necessity of fair value application in our country;Chapter Four:Analysis of the present situation of the fair value application. This paper fully discusses the status quo of the fair value applicated in listed companies of Sichuan Province through the annual report data analysis and questionnaire survey, and finds many problems that exist in the application process of the fair value;Chapter Five:Analysis of the causes of fair value application. Using methods such as descriptive statistics, factor analysis, correlation analysis, this paper exploratorily proposes the six causes which affect the application of the fair value. On this basis, this paper analyses the relationship between the causes. Combined with the whole research, this paper builds a dynamic process between the causes of fair value application and the present situation of the fair value application;Chapter Six:Advice and inspiration. Based on the views of the research, this paper puts forward some policy recommendations for further implementation of fair value.Through the research of this paper, the main conclusions are:First of all, according to the combined effect of the three external factors which are the quality of the information and the cost factors, stakeholders factors as well as political factors, the listed companies determine whether the fair value measurement can reliablely use. Then full consideration is given to the three internal affecting factors including the organizational characteristics factor, the financial indicators factor, management features factor, the listed companies ultimately make the decisions whether or not to apply the fair value. From application status of the fair value in listed companies, the combined effect of the internal and external factors is more of a negative impact:on the one hand, it makes listed companies consciously avoid the application of fair value measurement in operating activities; on the other hand, it makes the listed companies have obvious incentives to manage earnings, leading to profit manipulation in the application of the fair value; In addition, it makes the fair value of the information disclosed by the listed companies is not sufficient, and makes the listed companies believe that the relevant provisions of the fair value is imperfect; fair value information acquisition cost is high and relevant information is difficult to obtain; fair value measurement increases the enterprise accounting cost.Characteristics and contribution of this paper is mainly reflected in the following three aspects:Firstly, Research contents. The subjective cognitive to the application of fair value in the listed company was ignored by our researchers. Focus on the application of fair value of listed companies, this paper studies the application status of the fair value in listed companies, and the relationship between main factors, make a supplement for the literature in application of fair value.Secondly, Research methods. This paper makes fully use of the resources of Philosophy and Social Sciences project in Sichuan Province and project of Southwestern University of Finance and Economics. Through the annual report data analysis and questionnaire survey, this paper carry out the research of the application of the fair value from the subjective and objective dimensions. This research conducts a questionnaire survey to the80listed companies in Sichuan Province, and uses exploratory factor analysis to analyze the survey results, which is a breakthrough in the field of fair value based on purely empirical or theoretical research paradigm in our country.Thirdly, Research perspective. This paper innovatively carries out the research to the application and factors of the fair value from the subjective and objective two dimensions. On the one hand, through the objective financial data, this paper analyzes the current situation of the application of the fair value of listed companies; On the other hand, on the basis of objective analysis, focus on listed companies themself, this paper learns about the subjective cognition of listed companies to the application of fair value and the select motivation. First-hand information can make the conclusion of the study and recommendations more convincing. The limitations of this article are mainly reflected in the following three aspects:Firstly, resources can be expanded. This research is only on listed company in Sichuan Province due to the limitations of research resources. In the future, we can consider to use the resources of the Ministry of Finance or the SFC to test questionnaires to nationwide listed companies, making research conclusions more convicing.Also we can send out questionnaires to non-listed companies to compare and analyse the differences betbeen the results of the listed companies and unlisted companies, making a further analysis of the preference differences under different corporate nature on the application of the fair value.Secondly, the content can be sublimated. This paper mainly focuses on what the main factors of the application of the fair value of listed companies in our country. In the future, we can more deeperly study how these factots affect enterprises to choose to apply fair value, that is, from the impact mechanism and path of the application of the fair value.Thirdly, research methods can be innovated. This paper explores the application of fair value motivation problem by analysing the questionnaire.In the future, we can use experimental methods to directly study whether the enterprise selects to apply fair value.Due to the author’s lack of theoretical knowledge, there are some limitations on the breadth and depth of the three above, and can be improved in future research.