Jiri Strouhal, Ph.D., Department of Financial Accounting and Auditing, University of Economics Prague, W. Churchill Square 4, Prague, 130 67, Czech Republic
During last 30 years financial reporting in Europe faced the shifting of the measurement bases from traditional concept of historical costs towards “so called” fair value. Numerous critics stress their attention on the problem of fair value measurement as on of the major factors of current economic crisis. This paper summarizes pros and cons or this reporting base.
Barlev & Haddad (2007) focused on the relationship between the paradigm of fair value accounting
(FVA) and international accounting harmonisation, showing that FVA propels this harmonisation and harmonisation provides more relevant information that may foster the efficiency of global markets, which improves the quality of the FVA figures. Also another researches in the field of financial reporting harmonisation dealt with the aspects of reliability and correctness of the measurement (e.g. Aisbitt, 2001; Emenyonu & Grey, 1992 and 1996; Herman & Thomas, 1995). Barth et al. (2008) performed an analysis on whether application of IFRS is associated with higher accounting quality based on comparisons of accounting quality metrics for a broad sample of firms in 21 countries that adopted IAS/IFRS between 1994 and 2003, particularly comparing accounting quality metrics for firms that apply IFRS to those for a matched sample of non-US firms that do not in the period after the IFRS firms adopt IFRSs. Their generally findings show that firms applying IFRSs exhibit less earnings smoothing, less managing of earnings towards a target, more timely recognition of losses, and a higher association of accounting amounts with share prices and returns. All these aspects are also met within the trade literature (McGregor, 1999; Collett et al., 2001; Choi et al., 2002; Ampofo & Sellani, 2005) that approaches the issue of creating a unique set of general accepted accounting standards at global level.
Second phenomenon which is important for current reporting is definitely the level of disclosed information. Previous researches dealing with the level of disclosure (Cooke, 1992; Meek et al., 1995), or the probability of using IFRS or US GAAP (El-Gazzar et al., 1999; Murphy, 1999; Ashbaugh, 2001; Dumontier & Raffournier, 1998; Leuz & Verrecchia, 2000; Leuz, 2003) indicate a positive correlation between the listing of accounting units on foreign markets and the degree of disclosure and use of multinational standards as the basis for financial reporting. Trade literature which approaches the topic of interaction between regulations issued by FASB and IASB (Choi et al., 2001; Chawla, 2003; Zeff, 2007) sustain the idea that those standards which are issued by the international standard setting body (IASB) have a strong practical (material) character when considering matters of presenting financial accounting information.
Keywords: Financial Reporting, Globalisation, Harmonisation, Fair Value Accounting, Historical Costs Accounting
JEL code: M41, G30