An investigation of the local preparers' and users' perception on fair value accounting

Abstract

Fair Value is a measurement which is being widely used, lately. Given that IFRSs and IASs are entrenched in Maltese Company Law, Fair Value accounting will surely affect Malta. Its use is resulting in great impact on financial statements. This study provides an investigation on the way preparers and users look at this accounting measurement. Its key research objectives are to identify preparers' knowledge and users' view regarding this new accounting phenomenon. The view of the two parties was directed towards the relevance and the reliability of this measurement resulting in most of the users choosing a decision-making approach rather than a stewardship one. Its level of subjectivity was highlighted by practitioners leading to a lack of support towards Fair Value. From users' perception, subjectivity was not of a concern since the information will be showing a clearer picture of the financial situation of a company. The Big Four auditors interviewed, also emphasised that the increased level of subjectivity in Fair Value measurement presents an increased possibility of submitting a qualified audit report. Fair Value may also have an impact on the perception gap by departing from the prudence concept to market value concept of a business which may not always be possible to find fairly. The investigation continued by an in depth analysis how this measurement may effect the Income statement and the Balance Sheet. The study concludes that most practitioners and users do not have enough knowledge about Fair Value, with auditors having the greatest technical know-how. Most of the financial controllers' perception is that only an exit price to Fair Value exists. Indeed the IASB is currently making its deliberations whether Fair Value accounting should be on an exit or entry price basis. Overall it is evident that there is the necessity of providing educational guidance not only to practitioners but also to users in general with respect to what Fair Value measurement information presents. Such educational guidance will help or rather prevent users from running in to the wrong conclusion that the profit reported in the income statement is an actual fact what is available for distribution.