Li Yu (Colly) He
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Formal Name: Li Yu (Colly) He Personal Title: Miss Organisational Unit: Department of Accounting and Finance Load: PhD Student Part Time Supervisors:
Submission Date: 1st March 2016 Email: lhe@efs.mq.edu.au |
The usefulness of fair value accounting: evidence from the agricultural sector
Abstract
Purpose
This project evaluates the usefulness of Fair Value Accounting (FVA) in the Agricultural sector in Australia through undertaking Cost-benefit analysis of using FVA. In the analysis, benefit is evaluated by examining the forecasting ability of fair value for future cash flows while cost is assessed in respect to earnings volatility and manipulation of fair value.
Motivation
Both the International Financial Reporting Standard (IFRS) and US Financial Accounting Standard (USGAAP) move toward FVA with increasing momentum. This has aroused controversy about the usefulness of FVA. However, instead of evaluating FVA on different aspects, the literature mainly focuses on the value relevance issue of FVA. This project is therefore firstly motivated by a gap in the limited evidence provided in the literature with respect to other aspects of usefulness of FVA. It contributes to the literature by providing insight into the usefulness of FVA through examining its predictive ability for future cash flows and the consequences it introduces, which include earnings volatility and manipulation of fair value. Unlike the implementation scopes prescribed in the USGAAP, FVA is mainly applied in non-financial assets in IFRS. Hence, a second motivation for the project is to provide an insight into the implementation of FVA in non-financial assets.
Methodology and Data
A number of multiple regressions are developed with the theoretical support in the literature to test the forecasting ability of fair value for future cash flows. The extent of earnings volatility and manipulation of fair value are also investigated. Australian listed companies that apply the accounting standard AASB 141 – Agriculture in the financial periods of 2001 to 2009 are included.