290.E关于中小企业融资困境的制度背景分析 外文原文.doc

Fair Value Accounting and the Financial Crisis: Messenger or Contributor?Michel MagnanAbstractDid fair value accounting play a role in the current financial crisis? This appendix explores the issue. Fair value accounting implies that assets and liabilities get measured and reflected on a firms financial statements at their market value, or close substitutes. Extensive academic research done over the past 20 years shows that financial statements that reflect the market values of assets or liabilities provide information that is relevant to investors. In other context, fair value accounting is just a messenger carrying bad news. In contrast, there is also another research stream which is quite critical of the perceived merits of fair value accounting, and which worries about how it undermines what constitutes the core of financial reporting. More specifically, it is argued that fair value accounting is difficult to verify, may be based on unreliable assumptions or hypotheses and provides management with too much discretion into the preparation of financial statements. Hence, according to this view, fair value accounting is not necessarily a neutral or unbiased messenger. Moreover, fair value accounting creates a circular dynamic in financial reporting, with markets providing the input for the measurement of many assets, thus affecting reported earnings which are then used by analysts and investors to assess a firms market value. If markets become volatile, as has been the case in recent months, reported earnings also become more volatile, thus feeding investors apprehensions. Therefore, since fair value accounting is associated with more volatile and less conservative financial statements and, it may have allowed managers to delay the day of recognition as well as distorted investors and regulators perceptions of financial performance and stability at the end of the financial bubble. However, once the economic pendulum swung back, fair value accounting may have magnified their views as to the severity of the current financial crisis, hence accelerating some negative trends.Keywords: fair-value Accounting, governance, risk managementIntroductionDespite its almost universal adoption by accounting standard setters, the merits of fair value accounting continue to generateintense and passionate debates among academics, businesspeople, regulators or investors. A surprising element underlying these debates is the apparent irreconcilable positions adopted by participants in favour or against fair value accounting. However, the current financial crisis has significantly raised the level and stakes in that discussion, with fair value accounting increasingly being under attack. For instance, the U.S. Congress recently mandated the Securities and Exchange Commission to investigate and report on fair value accountings contribution to the financial crisis. In reaction, some standard setters such as the Canadas Accounting Standards Board, the Financial Accounting Standard Board and the International Accounting Standard Board have recently introduced temporary provisions waiving some aspects of fair value accounting for financial institutions.The purpose of the Appendix is to provide additional insights into the role played by fair value accounting in the financial crisis. Since the crisis is still ongoing, there is no direct or formal empirical evidence about such role, which may be perceived, actual or potential. However, by analyzing the conceptual and empirical foundations of fair value accounting, it may be possible to draw some inferences and to assess if and how fair value accounting underlies some of the recent turmoil in financial markets. In that regard, the Appendix aims to achieve the following objectives. First, I intend to provide a brief overview of fair value accounting, including its impact on financial statements. The overview includes a summary of the opposite viewpoints on the merits of fair value accounting. Second, I present and discuss the theoretical and empirical underpinnings of fair value accounting. Thirdly, I analyze the measurement and valuation challenges that arise from the use of fair value accounting. Finally, on the basis of the above analyses, I sketch a tentative framework to understand fair value accountings role and potential contribution to the financial crisis. While fair value accounting can conceptually apply to all aspects of a firms financial statements, I will purposefully focus on its application to financial instruments and financial institutions.ContextFair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties.1 For liabilities, fair value is defined as the amount that would be paid to transfer the liability to a new debtor. Under fair value accounting (FVA), assets and liabilities are categorized according to the level of judgment (subjectivity) associated with the inputs to measure their fair value, with three (3) levels being considered. At level 1, financial instruments are measured and reported on a firms balance sheet and income statement at their market value, which typically reflects the quoted prices for identical assets or1Financial Accounting Standards Board. 2006. Financial Accounting Standard 157 - Fair Value Measurements. Norwalk, CT.liabilities in active markets. It is assumed that the quoted price for an identical asset or liability in an active market provides the most reliable fair value measurement because it is directly observable to the market (« mark-to-market »). However, if valuation inputs are observable, either directly or indirectly, but do not qualify as Level 1 inputs, the Level 2 fair value assessment of a financial instrument will reflect a) quoted prices for similar financial instruments in active markets, b) quoted prices for identical or similar financial instruments in markets that are not active, c) inputs other than quoted prices but which are observable (e.g., yield curve) or d) correlated prices. Finally, certain financial instruments which, for example, are customized or have no market, will be valued by a reporting entity on the basis of assumptions that presumably reflect market participants views and assessments (e.g., private placement investments, unique derivative products, etc.). Such valuation is deemed to be derived from Level 3 inputs and is commonly referred as “mark-to- model” since it is often the outcome of a mathematical modelling exercise with various assumptions about economic, market or firm-specific conditions. 2 In all cases, any unrealized gain (or loss) on financial instruments held by an institution translates into an increase (decrease) in its stockholders equity and, consequently, an improvement (deterioration) in its capitalization ratios. 3Detractors, among them David Dodge, the former Governor of the Bank of Canada, argue vehemently that FVA has accelerated and amplified the current financial crisis.4 Their argument can be summarized as follows. Starting in 2007, the drop in the price of many types of financial instruments led financial institutions to mark down the asset values reported on their balance sheets, thus weakening their capitalization ratios (lets think about the first write-offs following the start of the subprime crisis). To improve their financial profile and to enhance their safety zone with respect to regulatory capital requirements, these institutions started to sell securities or close down positions on some financial instruments in markets that were increasingly shallow as a result of the emergence of a liquidity crisis. These sales magnified the downdraft in quoted prices, thus bringing additional devaluations, etc. Along these lines, William Isaac, former Chairman of the U.S. Federal Deposit Insurance Corporation, argues that “mark-to-market accounting has been extremely and needlessly destructive of bank capital in the past year and is a major cause of the current credit crisis and economic downturn”.5However, FVA can count on broad support from the accounting profession, standard setters and regulators. For instance, in a recent speech, Nick Le Pan, Canadas former Superintendent of Financial Institutions, argued that FVA is only a messenger and should not be criticized2 For more details, see FAS 157 and FAS 159 - The Fair Value Option for Financial Assets and FinancialLiabilities.3 Currently, while all unrealized gains or losses on financial instruments do affect a firms stockholders equity, they do not necessarily directly affect its reported net earnings. Some gains or losses may flow through an intermediateperformance measure which is labelled Other comprehensive income and which is distinct from reported netearnings.4 See McFarland, J. and J. Partridge. 2008. Mark-to-market' accounting rules fuel debate. The Globe and Mail Report on Business. November 20.5 Jeffrey, G. 2008. Mark market debate down as a draw. The Bottom Line, December, p. 27.for merely reflecting the poor underlying economic outlook.6 Barbara Roper, from the Consumer Federation of America, argues that sound accounting principles, such as FVA, led to the exposure of underlying problem assets. In her view, FVA provides more accurate, timely and comparable information to investors than any other accounting alternative.Theoretical and Empirical Foundations Underlying FVAFVAs theoretical and empirical premises are relatively solid. In fact, it is one of the few accounting standard that can be traced back directly to accounting-based scientific research. More specifically, there is consistent empirical evidence, accumulated over the past 20 years, that a firms stock price is more closely associated with the market value of its underlying financial or real assets than with their historical cost, i.e., their purchase price plus related expenses.7 The superior relevance of market-derived values is even more obvious in the case of financial derivatives which historical cost is often close to zero but which market value can fluctuate widely.8 In other words, fair values, or marked to market values, have been found to be more relevant indicators of firm value than traditional historical cost-based figures.9An interesting early study on the relevance and implications from FVA was performed by Bernard, Merton and Palepu (1995). For many years, Denmarks accounting standard-setting and banking regulatory authorities have relied on mark-to-market valuation for the assets of their commercial banks.10 Bernard, Merton and Palepu find that Danish banks book values, which reflect mark-to-market valuations, seem to provide more reliable information to investors than historical cost-based figures then provided by U.S. banks. Moreover, they do not find evidence hat Danish bank executives manipulate mark-to-market numbers that Danish 6 McFarland, J. and J. Partridge. Idem.7 See, among many papers, Barth, M E, W H Beaver and W R Landsman. 2001. The relevance of the value relevance literature for accounting standard setting: another view. Journal of Accounting and Economics 31, pp 77104; Landsman, W.R. 2006. Fair Value Accounting for Financial Instruments: Some Implications for BankRegulation. Bank for International Settlements Paper.8 Venkatachalam, M. 1996. Value-relevance of banks derivatives disclosures. Journal of Accounting andEconomics 22, pp 32755.9 While studies take many different forms, the most widely used approach closely resembles the following(simplified version of a regression):Priceit = 0 + 1Assets(at costs)it + 2Liabilitiesit + 3Unrealized Gain(Loss)itWhere i represents a specific firm, and t, a given year-end. Variables are measured in $, in $ per share, or standardized by proxies for firm size. Price equals a firms stock market price while both Assets and Liabilities are as on the balance sheet (consistent with Generally Accepted Accounting Principles). Unrealized Gains(Losses) reflect the difference between an asset market value (according to FVA) and its book value (according to GAAP). FVA-measured information is deemed to be more relevant for investors if results from the regression model show that 3 is positive and statistically significant.10 Bernard, V., R. Merton, and K. Palepu (1995). Mark-to-Market Accounting for Banks and Thrifts: Lessons from the Danish Experience. Journal of Accounting Research 33 (Spring), 1-32.that Danish bank executives manipulate mark-to-market numbers to circumvent regulatory capital ratios. However, they also point out that that the Danish and U.S. capital markets are not quite similar and that their findings may not completely hold in a U.S. setting.On the basis of these empirical findings, many accounting professors have actively lobbied standard setters such as the Financial Accounting Standards Board to 1) introduce FVA into financial statements, initially through footnote disclosure, 2) gradually reduce the relative scope of historical cost-derived assets and liabilities in financial reporting and, 3) modify the conceptual framework underlying standard setting to state more clearly that the primary goal of financial reporting is to provide information that is relevant to investors (presumably, stock market investors) and that, as such, FVA should be emphasized over historical cost11 Academic researchs influence over the standard setting process has been greatly enhanced by the involvement of many leading accounting professors favouring FVA into the decision-making process of standard setters or regulators such as the FASB or the SEC.12 In that regard, it is important to note that there is currently a joint project between FASB and the IASB to adopt a unique conceptual framework for accounting standard-setting. The draft framework, which should be adopted within the next year, clearly states that the main purpose of financial reporting is to provide information that is relevant for investors, with emphasis on market values and cash flow forecasts as the most critical drivers underlying financial reporting.13Measurement and Valuation ChallengesDespite its many tangible or perceived benefits to investors, the adoption and use of FVA undermines several critical foundations of financial reporting to which we have become accustomed. More specifically, the implementation of FVA explicitly confirms the primacy of financial markets and of investors in the determination of accounting standards. Essentially, the broader social issues and implications arising from accounting standards for stakeholders beyond investors are assum