Thesis on the Analysis of the Prospects for the Application of Fair Value Accounting Measurement Attributes
I. The Meaning of Fair Value and Accounting Measurement Attributes
The current accounting standards of various countries differ in their expressions of fair value, and China's Ministry of Finance issued the "Accounting Standards for Business Enterprises-Basic Guidelines" on February 15, 2006 The Ministry of Finance of China in February 15, 2006 issued "Business Accounting Standards - Basic Standards", the definition of fair value is: in an arm's length transaction, familiar with the circumstances of the transaction between the two parties to the voluntary exchange of assets or settlement of liabilities of the amount. The International Accounting Standards Committee (iasc) defines fair value as the amount for which an asset could be exchanged or a liability settled voluntarily between knowledgeable parties in an arm's length transaction. (1998)
Through these standards, we can find that most of them have these key words: "arm's length transaction", "familiar parties", "voluntary". , the prominent core is fairness or equity. The most ideal evidence of fair value is the market price, the historical cost represents the past market price, so the fair value is a relative concept with the historical cost, that is, on behalf of the current value, which requires a corresponding more developed and perfect market environment.
Accounting measurement attributes are aspects of accounting elements that are quantified in financial form. Each accounting element can be measured monetarily in a number of ways, and thus have different measurement attributes. For example, historical cost, replacement cost, net realizable value, present value, and fair value. It can be concluded that the accounting measurement attribute of fair value is: a quantitative monetary representation of an accounting element in the form of fair value.
The challenges of fair value
(a) The financial crisis on the fair value of the external impact. Since the second half of 2007, the crisis, which was originally limited to the isolated nature of subprime mortgages, has gradually evolved into a global financial crisis. Not only caused the recession in many countries, affecting people's economic life. Unexpectedly, it has impacted the theory and practice of financial accounting, mainly fair value accounting. Wall Street bankers, who suffered a lot of losses in the crisis, were the first to take issue with fair value, which they believed had caused financial institutions to recognize a large number of unrealized book losses without cash flow in this financial crisis, triggering panic among investors and making most of them irrationally sell shares of financial institutions of subprime mortgage products, which exacerbated the crisis. Therefore, they called for an immediate halt to the implementation of fas157 and a return to historical cost accounting.
(ii) The limitations of the fair value measurement attribute itself
1. Fair value lacks reliability (verifiability). First of all, fair value emphasizes the "fair trade", but in practice, the fair is vague and difficult to guarantee. Again, the actual fair value sometimes need to be obtained through valuation techniques, its reliability has been questioned because of unsatisfactory. Therefore, reliability is its fatal weakness.
2, the fair value of the lack of operability. On the one hand, the acquisition of fair value depends on the soundness of the market system and the quality of accounting staff and other factors. And China's current property rights and factors of production market is not very active, the intermediary structure of the credibility of the low, market law enforcement and management is not strict, the quality of accounting staff, and so on, so that the relevant fair value is difficult to obtain; on the one hand, due to China's accounting standards of the fair value of the measurement of the theoretical and practical operations are not specified in the end of the measurement of the operation should be how to operate, or a little bit of description but not enough detail, appearing to be generalized and broad.
3, fair value measurement cost issues. Fair value measurement attribute is a dynamic measurement attribute, the use of fair value measurement of all assets and liabilities means that all assets and liabilities to be re-measured every accounting period, in addition to the need for specialized appraisers to accurately determine the fair value of assets and liabilities, but also need to be adjusted by the accounting staff of assets and liabilities for a full range of accounting, which will increase the cost of asset valuation and accounting costs.
Appraisal of assets and liabilities
Three, the prospect of fair value analysis
Professor Ge Jia Shu in the "financial accounting measurement mode of the inevitable choice: dual measurement" article pointed out that: dual measurement mode that is, the historical cost of measurement and fair value measurement is the inevitable choice of the history and the times. In the future, the use of dual measurement in financial accounting for the recognition and reporting model is still the trend. That is, in an enterprise, for most of the non-financial assets and non-financial liabilities, any need to be measured at historical cost (including amortized cost), so as to produce the corresponding historical that is, the actual information, and for financial assets, financial liabilities (which may also include certain non-financial assets in the active market, such as investment properties and other non-financial products, as well as some of the more relevant transactions at fair value, such as corporate mergers, debt restructuring, impairment of long-lived assets and non-monetary exchanges) are still required to be measured at fair value, which results in expected information that is reflected in the current list price.
Admittedly, the current fair value can be described as internal and external problems, both facing the financial crisis brought about by the external impact, at the same time due to their own limitations and questioned. But the author believes that fair value is the inevitable choice of accounting measurement in a market economy. In quite a long time, fair value and historical cost **** existence, the two complement each other, complement each other. Fair value will not only not exit the stage of history, but also get further. Improvement and development, and constantly close to international practice, thus promoting the globalization of China's economy. The reason why the author came to the above conclusion is based on the following aspects of the analysis:
(a) the outbreak of the financial crisis of the cause of reflection. the end of 2008, sec in the report to the congressional requirements of the report pointed out that first of all, we need to clarify the root causes of the financial crisis. They believed that the root causes of the financial crisis existed in three main areas:
First, poor XX decision-making;
Second, inappropriate risk management;
Third, the weakness of the current supervisory approach.
As a matter of fact, we know that the financial sector created the real estate bubble, constantly renovated derivative financial instruments, artificially created those purely speculative and risky derivatives, such as amplifying financial asset bubbles through unregulated, non-transparent securitization of assets and other financial innovation practices, before finally creating the disastrous subprime mortgage crisis. Therefore, we believe that fair value is not the culprit, but only the financial sector for the subprime crisis to find the "scapegoat". The accounting profession used the fair value measurement model to disclose financial asset bubbles in a timely, transparent and open manner, which prompted the financial sector, investors and financial regulatory authorities to face up to and defuse the financial asset bubbles. Without the adoption of fair value accounting, investors might have been forever hidden in the illusory bubbles created by the financial sector. Admittedly, as many accounting scholars have pointed out, the practice of determining fair value on the basis of "non-fair" market quotations may have contributed to the crisis to a certain extent, but this is a technical issue at the application level, and the scientific connotation of fair value cannot be denied in this regard, and it is not possible to abolish fair value because of choking, but should be modified and improved. Instead, it should be modified and improved.
(2) There is a broad theoretical and practical basis for the existence of fair value
1, compared with the historical cost has an unparalleled superiority. Historical cost, also known as the original cost, is the original transaction price (amount). Historical cost is based on a series of assumptions based on the business environment, these assumptions mainly include a relatively stable economic environment and market environment. Under these assumptions, historical cost may truly reflect the financial position and operating costs of the enterprise. However, the unstable business environment and the large fluctuation of prices, the fluctuation of interest rates and exchange rates and many other reasons can cause serious distortion of historical costs. Thus, compared with historical cost, there are several advantages:
(1) More in line with the decision-useful financial objectives. Fair value can more objectively reflect the economic substance of the enterprise, for information users to provide more timely, highly relevant decision-making information;
(2) more in line with the requirements of the principle of proportionality. The application of fair value can make the income and costs, expenses are realistic, realize the effective proportion;
(3) more conducive to the enterprise's capital preservation, at the same time in line with the concept of assets and liabilities, is conducive to the sustainable development of society. The use of fair value measurement, no matter when the cost of production capacity are measured at the current market price or the present value of future cash flows, the measurement of the amount of money even in the environment of price increases can be purchased back to the original corresponding size of the production capacity, the enterprise physical capital to maintain and preserve.
2, the inherent requirements of the global convergence of accounting standards. In the context of economic globalization, the development trend of global convergence of accounting standards is inevitable. After China's accession to the WTO, the economic exchanges with countries around the world are more frequent, and the smooth convergence of China's accounting standards with international standards is conducive to the consistency of the caliber of accounting, which can promote the development of the economy. Fair value measurement will play a pivotal role in the future of global harmonization of accounting standards, and thus the promotion of the use of fair value will be imperative.
3, the inevitable choice of the development of the market economy. On the one hand, fair value is to adapt to the inevitable choice of financial innovation. China's financial markets such as the stock market, securities market, futures market, foreign exchange market from scratch, on the basis of which the innovation of financial instruments are also developed at a rare rate. "For financial instruments, fair value is the most relevant measurement attribute, while for derivative financial instruments, fair value is the only measurement attribute." This is because these innovative financial instruments are only recognized initially but not subsequently under historical cost measurement. Fair value is not only the initial recognition but also subsequent recognition, which can reveal the potential risks of the enterprise, so that users can make appropriate decisions; on the other hand, the use of fair value measurement in line with the requirements of the market economy under the relevance of accounting information for decision makers to provide timely, relevant and reliable information to help protect the rights and interests of investors, and to safeguard the development of healthy operation of the capital market.
Four, improve the fair value measurement of a few suggestions
(a) Objective evaluation of the reality of China's environment, the gradual adoption of fair value measurement. China's current capital market is still not perfect, the phenomenon of profit manipulation is serious, the cost of obtaining the fair value of assets is higher, the use of fair value in a hurry, the accounting revolution needs to take a "gradual path", rather than immediately implement a comprehensive, unified fair value accounting measurement model. The use of fair value should be selectively allowed and the scope of its use should be gradually expanded. For must use fair value measurement of some economic operations, such as financial assets, financial liabilities should try to require the use of, and in the future consciously and gradually expand the scope of measurement to other non-financial assets.
(ii) improve the external environment of the use of fair value. On the one hand, improve our accounting standards in the provisions of the fair value, due to our accounting standards in the theory and practice of fair value measurement in some of the theory and practice of some only a little bit of description but not detailed enough, seemingly general and broad, although the new guidelines for these cases have done some specification, but many are still only qualitative concepts, there is still room for human manipulation. Therefore, some practical operations should be more detailed, clear, in order to improve the operability of fair value; on the other hand, to strengthen the construction of the market economy, and strive to provide a good external environment for the implementation of fair value, these accounting external environment mainly includes sound and mature asset trading market, property rights trading market, capital market and developed professional valuation technology, in order to further improve the reliability of the acquisition of fair value, authenticity. The company's business is a good example of a company that has a good reputation.
(C) Improve the quality of accounting personnel. The introduction of fair value measurement, the need to improve the business ability of accounting personnel, professional judgment and professional moral quality. This requires accounting personnel in addition to a wealth of accounting theory and practical ability, but also need to understand the assessment, finance, capital markets and other related knowledge. Thus, on the one hand, it is necessary to cultivate the quality of professional ethics of accounting personnel and increase the penalties for violations of professional behavior; on the other hand, it is necessary to strengthen the training of accounting personnel in the skills of accounting recognition, measurement (especially estimation), information disclosure and other aspects.
Main References:
[1]Ge Jiashu, Dou Jiachun, Chen Chaolin. The inevitable choice of financial accounting measurement: dual measurement. Accounting Research, 2010.2.
[2]Zhao Jing. Fair value accounting measurement attribute application prospect exploration. Theory, 2006.4.
[3] Chen Mingrong, Wei Qiyan, and Fang Jin. An analysis of the problems in the application of fair value. Western Finance, 2009.10.
;[3] Chen Mingrong, Wei Yan, Fang Jin.