Fair Value Accounting and Income Measurement: An Application to Standard Setting
In this chapter, we employ the ROM framework outlined in previous chapters to address the relevance of fair value accounting for equity valuation purposes. In recent times, companies worldwide are increasingly required to adopt fair value measurement for financial reporting, moving gradually away from the historical cost convention. This shift is widely believed to have important ramifications for both firms and user groups, but its exact impact is not yet well understood. By extending the ROM developed in previous chapters, we explore here how, and to what extent, fair value measures help to convey an enterprise’s income generation in a way that is pertinent to equity investors.
The research presented in this chapter was initiated and mostly conducted under the aegis of the International Association for Accounting Education and Research (IAAER) & KPMG Reporting Financial Performance Research Program. The author thanks the IAAER, KPMG, and the University of Illinois for financial support through the Program. Helpful comments were received from Mary Barth, Gary Biddle, Peter Chen, Steve Matsunaga, Katherine Schipper, Donna Street, and participants in the Reporting Financial Performance Workshops held in Bordeaux, New York, and Istanbul, and the Hong Kong University of Science and Technology workshop.
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