Ekonomika a management
VALUE ALLOCATION – CONTRIBUTION AND RISK TO THE RELIABILITY OF FINANCIAL REPORTING
The decision-usefulness theory (Staubus, 2008) connects the quality of the ﬁnancial information disclosed with the right business decisions made by its users, and it is based on the notion that the relevance and reliability of ﬁnancial reporting is crucial, having important practical implications. Moreover, according to the basic economic theory, it is shown that high ﬁnancial reporting quality is a natural outcome of private equity monitoring and governance (Beuselinck & Manigart, 2007).
Jméno a příjmení autora:
Adela Deaconu, Sorana Crisan, Anuta Buiga
Value allocation, ﬁnancial reporting, international valuation standards, international ﬁnancial reporting standards, fair value, real estate, credibility
DOI (& full text):
Our study argues in favor of the reliability of fair value estimates for correct decision making by the stakeholders of the ﬁnancial reporting market. The analysis is singularized to emergent…více
Our study argues in favor of the reliability of fair value estimates for correct decision making by the stakeholders of the ﬁnancial reporting market. The analysis is singularized to emergent contexts, as the Romanian market is the case study, and it is focused on the process of value allocation between the components of a group of assets. Having an application on ﬁxed assets, the paper shows how fair value estimation is critical and implies risks on such an atypical market. The process of value allocation may bring a high level of arbitrariness to fair value accounting, this being crucial to apply correctly the valuation methodology in relation to the nature of the asset and market information available, and the selection of the allocation keys. The empirics of our study show a consistent expertise of Romanian valuators, as the most frequently used method for value allocation is the deduction of the value of those assets that was estimated based on the market approach, and not the values that were estimated based on the cost or income approach. Other ﬁndings show the frequent use of replacement cost, gross or net, to the detriment of book value, a very important aspect for an emergent market, even more so as revaluation in Romania does not guarantee that dedicated valuation methodology was used. These results are all the more important as land and buildings were the majority of ﬁxed assets valuated, with the highest values as a result of the real estate bubble prior to the ﬁnancial crisis, and with an essential role in the activity of the companies.
Ekonomika a management