Fair Value Measurement in Financial Reporting

Foundations and Trends in Accounting, Vol. 9, Forthcoming

136 Pages Posted: 24 Oct 2014 Last revised: 9 Nov 2014

See all articles by Leslie D. Hodder

Leslie D. Hodder

Indiana University - Kelley School of Business - Department of Accounting

Patrick E. Hopkins

Indiana University - Kelley School of Business - Department of Accounting

Katherine Schipper

Duke University - Fuqua School of Business

Date Written: October 19, 2014

Abstract

This monograph provides a historically informed discussion of conceptual and procedural issues related to the use of the fair value measurement attribute in financial reporting. Our goal is to provide a structure, based on the conceptual frameworks of the Financial Accounting Standards Board and International Accounting Standards Board, for researchers’ evaluations of empirical research studies that investigate the informational properties of all measurement bases, including fair values. We begin by defining, addressing misconceptions about, and providing a brief history of, the fair value measurement attribute. We next discuss decision usefulness of fair value and other measurement bases, and describe and evaluate examples of empirical research that documents the decision usefulness of recognized and disclosed fair value information, focusing on predictive ability, value relevance and risk relevance. We also discuss the role of verifiability in the context of relevant and faithfully represented accounting information; describe three untested, verifiability-related maintained assumptions that arise in discussions of fair-value-measurement research; and discuss research designs for investigating questions related to accounting measurement verifiability. Finally, we discuss claims that use of the fair value measurement attribute causes procyclical behavior among financial institutions and that accounting standards have become increasingly fair-value-oriented during the last two decades.

Keywords: fair value, financial accounting, measurement, relevance, representational faithfulness

JEL Classification: M40, M41

Suggested Citation

Davis Hodder, Leslie D. and Hopkins, Patrick E. and Schipper, Katherine, Fair Value Measurement in Financial Reporting (October 19, 2014). Foundations and Trends in Accounting, Vol. 9, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2513547

Leslie D. Davis Hodder

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Patrick E. Hopkins (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

Kelley School of Business
1309 E. 10th Street
Bloomington, IN 47405
United States
812-855 2617 (Phone)
812-855 8679 (Fax)

Katherine Schipper

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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