05 December 2017

EFRAG: Accounting meets valuation

EFRAG conference brings together leading preparers, valuation experts, users, regulators and academics to discuss the merits, limitations and challenges of fair value in financial reporting.

EFRAG Board President Jean-Paul Gauzès noted that, “EFRAG’s mission is to serve the European public interest by developing and promoting European views in the field of financial reporting. We are hosting this event to take stock of the latest views on fair value, a topic that encourages much debate. Six years after IFRS 13 Fair Value Measurement was issued, we will ask how practice has developed and what challenges remain.”

Fair value involves reporting an asset or liability based at its current market price. Some argue that fair value enhances the transparency, comparability and relevance of financial statements. However, there can be challenges in applying fair value, such as when market conditions fluctuate significantly or prices are not observable. Fair value accounting can result in volatility in earnings and on the balance sheet of companies that apply IFRS. The EFRAG conference is examining the merits and limitations of fair value in financial reporting from an accounting and a valuation perspective. It is asking whether fair value volatility can be problematic and what lessons have been learned since the global financial crisis.

 

The questions under consideration included:

- What we have learned about fair value in theory and in practice - since the global financial crisis?

- Is fair value pro-cyclical? Does it encourage short-termism?

- Is the market always right – i.e. how can users of financial statements assess a potential pricing bubble?

- How can one ascertain fair value in the absence of markets?

- How should potential fair value volatility be considered in EFRAG’s European public good assessment?

- Who should set valuation principles for financial reporting? 

Full press release

© EFRAG - European Financial Reporting Advisory Group