Fair value disclosures in practice of listed companies in UK and Germany

The financial reporting process generating information which is useful in relation to user needs helps companies in becoming more competitive within both the local and global environment. Paper contributes to the body of literature dealing with financial reporting disclosure practices: there is studied the issue of disclosures on fair value measurements in the financial statements. The employed research design imposes the construction of a guide of best practices that is further used in computing a disclosure index. Based on a sample of companies belonging to the financial sector we analyze to which extant they disclose information on fair value measurements used in financial reporting. In order to achieve the objective of this study there was calculated a firm-based disclosure score called disclosure index. Descriptive analysis and potential correlation between this index and the use of fair value for financial reporting valuations are further investigated.

Paper addresses the issue of fair value measurement disclosure in the financial statements. Thus, we selected a sample of 20 companies listed on the London Stock Exchange and Frankfurt Stock Exchange, companies activating in the financial sector. There were analyzed the financial statements of these companies for the years 2007, 2008 and 2009 to identify the extent to which they provide information related to fair value.

Following the performed analysis, we concluded that fair value measurements disclosure index had an upward evolution during the study period, expected phenomenon since the ambiguity surrounding the presentation and measurement of fair values in the financial statements often resulted in blaming it during the recent economic and financial crisis. In this regard, many tried to increase the volume of disclosures regarding fair value measurements for financial information in order to maintain users’ confidence, especially in what concerns the investors. We also observed that the disclosure index space evolution, i.e. taking into account the country where companies in the sample studied have their headquarters, indicates that the companies from UK systematically disclosed more about fair value measurements than those from Germany.

During the last decades, public interest for business ethics has significantly increased due to an apparently continuous flow of business fraud and fraudulent management. It therefore doesn’t surprise us that public trust in businesses and accountants is decreasing. This represents our argument for finding ways to incorporate ethics both within the educational environment and accounting practice.  Encouraging an ethical behavior would not only discourage fraud, but would also help us contribute to the state of accountancy that would make us be proud of our profession.

* This paper is one of the research outputs of projects P403/11/0002 registered at Czech Science Foundation (GAÈR) and POSDRU/89/1.5/S/59184 Babeº-Bolyai University, Cluj-Napoca being a partner within the project.