Quiz
Werkcollege 1: Baker and Schulte
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1Accounting as Economics. Select the correct answers related to Barker and Schulte?
- AIntroduction of the idea of Fair Value;
- BIFRS 13: emphasis on current market price as a guide to economic decision
–making; - CImplication: market ontology=> no distinction between different types of fair value;
- DHowever, IFRS 13 explicitly acknowledges three levels of FV;
- ELevel 3: IFRS 13 requires hypothetical market and simulations as if market exists.
- FBeliefs about fair value are shared by everyone (collective intentionality & acceptance), because it
said to be so (status function declarations)
2Faithful representation = representing the market ontology
- ARichtig
- BFalsch
3Tranformation of concept of “Reliability”
This Transformation makes assumptions about ontology & epistemology- ARichtig
- BFalsch
4Searle’s account of Institutional Reality: Select the correct one?
- ABeliefs about fair value are shared by everyone (collective intentionality & acceptance), because it
said to be so (status function declarations) - BThis creates institutions (=ontologically subjective);
- CCreates institutional facts (=epistemologically objective) => entity-specific instead of market-specific?
- ABeliefs about fair value are shared by everyone (collective intentionality & acceptance), because it
5This paper questions the main premise of IFRS 13, that Fair Value for non-financial assets always faithfully represents the economic ‘reality’.
- ARichtig
- BFalsch
6Shift in Accounting as a metaphor:
- AAccounting as History:
Information that is reliable
Historical Cost Accounting
[Record keeping] - BAccounting as Economics:
Information faithfully represents market signals and expected cash flows
Fair Value Accounting - Caccounting is the translation of economic “reality” into the balance sheet
- AAccounting as History:
7accounting is the translation of subjectief “reality” into the balance sheet
- ARichtig
- BFalsch
8Cost Model is the preferred measurement model of the IASB; the theory and practice of fair value measurement is set out in IFRS 13
- ARichtig
- BFalsch
9IFRS 13 is centered on the concept of ‘the market price’ as a guide to economic decision-making.
- ARichtig
- BFalsch
10What is the objective of IFRS 13?
- Ato estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions’
- BAmong their many functions, markets are systems that transmit information in the form of prices.
11Why use the market price as guiding principle?
- AMarkten zijn systemen dat informatie overdragen in de vorm van prijzen.
- Bmarkets are systems that transmit information
- CMarketplace participants attribute prices to assets and, in doing so, distinguish the risks and rewards of one asset from those of another
- Dconsensus view about an asset or liability
12What is Market Ontology?
- AMarket price is an unique outcome of the market, no other value exists
it does not depend on any metaphor, it just exists - Bdata are observable inputs other than Level 1 data,
- Cthere should be distinction in IFRS 13 between different ‘types’ of fair value
- Ddata are quoted prices in active markets, while
- AMarket price is an unique outcome of the market, no other value exists
13What if there are no market prices readily available?
- AThe solution of IFRS 13 is epistemological diversity
- BLevel 1’ data are quoted prices in active markets, while (Onaangepaste genoteerde prijzen in actieve markten voor identieke activa en verplichtingen . Voorbeeld: Slotkoers op Euronext)
- CLevel 2’ data are observable inputs other than Level 1 data (Genoteerde prijzen voor soortgelijke activa en verplichtingen in actieve markten of inputfactoren die gebaseerd zijn op of ondersteund worden door waarneembare marktgegevens. Voorbeeld: Prijzen per vierkante meter afgeleid van prijzen in transacties van soortgelijke gebouwen in hetzelfde geografische gebied.)
- DLevel 3’ data are unobservable, meaning that they are the preparer’s own assumptions about ‘the assumptions that market participants would use when pricing the asset’ (IFRS 13, para 87). (iet-waarneembare inputfactoren voor het bepalen van de reële waarde van een actief of verplichting.
Voorbeeld: Netto-contantewaardeberekening op basis van aannames van marktpartijen.)
14How do we know Level 3 fair value is an faithful representation of price?
- Aconsidered from the perspective of a market participant
- Bnot identify specific market participants
- Cobtain information about market participant assumptions
- Dclear distinction between the reporting entity and the market participant
- Ean entity uses assumptions that market participants would use when pricing the asset
15Searle (1995; 2010), use theory of the nature of institutional reality. Benoem four elements?
- AIntentionality (“what are you trying to do?”)
- BCollective Intentionality (“what are we all trying to do
together?”) - CStatus function declarations (“ have we made it clear
to everyone what we try to do as a fact”?) - Dontological and epistemological status of institutional facts
- EInstitutions are rules of society to create assets and liabilities
16Why Searle’s theory on the nature of institutional reality?
- AInstitutions are rules of society to create assets and liabilities
- BIFRS standards are rules of accounting to create assets
- Cfair value of assets & liabilities
17What reality is IFRS 13 “representing”?
- ACollective Intentionality = a market is a setting where agents try to determine the “right” price
- BStatus function declarations = the price quoted on the market is “in fact” the right price, i.e. the fair value.
- Contological status: Ontology: [“ontos=being, that which is” – “logos= the study of-” ; “logia= logical discourse]” >>> Does it’s really exist?
- Dit is a network where market transactions and environmental context coexist
18Does “the market” exist by itself?
- ANo, it is a network where market transactions and environmental context coexist.
- BYes, it is a network where market transactions and environmental context coexist.
- CNo, IFRS 13 is subjective for both Level 1 & 3, because it depends on what someone consider to be the
market.
19Objective: we know that there is a market where all market participants come together to agree on a price, and we can find this price (so we don’t need a financial statement in which this is copy-pasted (redundancy because it is a pre-existing institutional fact).
- ALevel 1
- BLevel 2
- CLevel 3
20subjective: depends on whether we agree with the calculations of the entity (hypothetical fair value) >>
faithful representation is meaningless- ALevel 1
- BLevel 2
- CLevel 3
21Interviews with preparers of the financial reports explore how they responded to this dilemma for Level 3?
- ATransferring the problem elsewhere
- BFinding an expedient solution
- CNarrowing the problem to make it more tractable
- DSpeculative thinking
- EDifferent practices emerged (no acceptance of one status function declaration)
22What are the main results?
- AVery Limited use of Level 1: core-assets are very specific, CGU can not be separated & very difficult
to determine the correct market discount rate - BOne way to deal with this is to let another party determine the fair value: for instance the auditor
(this makes it entity-specific) - CDifferent practices emerged (no acceptance of one status function declaration)
- DSpeculative thinking
- Eprofit is change in (market) value. There is flexibility in to what you can consider market value
- Fin practice, accounting was more conservative, with focus on historical cost
- Gfair values are introduced in a select group of standards
- AVery Limited use of Level 1: core-assets are very specific, CGU can not be separated & very difficult
Informationen
- Beschreibung
- Baker and Schulte
- Autor
- Gelöschter Nutzer
- Sprache
- English
- Aufrufe
- 15
- Verlauf
- Erstellt am 11 Mai 2019 · aktualisiert am 12 Mai 2019
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