Peter Walton

Fair Value Accounting and the Banking Crisis in 2008: Shooting the Messenger

The paper sets out to analyse the effects of the financial crisis on the international standard-setter in 2008 and the attempts made to shoot the messenger – to blame IAS 39 for creating the crisis for reporting unrealised losses, rather than the cause being bankers making bad investment decisions. It first provides a brief analysis of IAS 39 and fair value accounting for financial instruments. It then sets out the relationship with the Basel II banking regulatory regime. The main part of the paper is a chronological presentation of the events of 2008 as they impact upon the international standard-setting institution. In particular, we analyse the impact of the G20 requirements and the blunt intervention of the European Commission that led to amendments to IAS 39. The final part of the paper looks at the consequences as they are so far discernible and the damage done to the IASB by shooting the messenger.

The Legitimacy of the IASB

This paper takes issue with Burlaud and Colasse (Accounting in Europe, 8, pp. 23–47, 2011a) who suggest that the International Accounting Standards Board (IASB) lacks legitimacy and that this has led to a return of politics to standard-setting. We show that the IASB is supported by the leaders of the worlds major economies (G20), and by the European Commission and European Parliament. The European Commissions policy is to pursue wider adoption of the IASBs standards. We go on to suggest that politics has never been absent from standard-setting and to note that a number of the positions taken by Burlaud and Colasse are not supported by the mainstream literature.

The Routledge companion to fair value and financial reporting

Part 1: Introduction 1. Introduction: The Nature of Fair Value 2. The Use of Fair Value in IFRS 3. What SFAS 157 does and does not Accomplish 4. The Case for Fair Value 5. Fair Values: Imaginary Prices and Mystical Markets Part 2: Theoretical Analysis 6. Recent History of Fair Value 7. Fair Value and Valuation Models 8. Whither Fair Value?: The Future of Fair Value 9. Between a Rock and a Hard Place 10. Fair Value and Capital Markets 11. Fair Value: The Right Measurement Basis? 12. Measurement in Accounting and Fair Value 13. CCA: An Unsuccessful Attempt to Change the Measurement Basis 14. Alternatives to Fair Value 15. The Relevance and Reliability of Fair Value Measurement 16. The Fair Value Principle and its Impact on Debt and Equity Part 3: Fair Value in Practice 17. Fair Value: A Cautionary Tale from Enron 18. The Insurance Industry and Fair Value 19. Fair Value Measurement for Corporate Entities, Insurance Companies and Retail Banks from an Investment Bankers Perspective 20. Fair Value and the Auditor 21. Fair Value Accounting in the USA 22. A Japanese Perspective on Fair Value 23. Pension Accounting and Fair Value 24. Fair Value in IFRS: Issues for Developing Countries and SMEs 25. Fair Value and Financial Instruments 26. Fair Value and IAS 36

From newsletter to academic journal: creating the European Accounting Review

This paper looks at the evolution of the European Accounting Review as the journal of the European Accounting Association. It provides an historical background to the launch of the journal in 1992, and traces how the European Accounting Review has developed to be a widely accepted academic journal in accounting. The journal tried at one and the same time, and managed with some success, to fulfil several different functions: to be an academic journal, a newsletter for the members and a place for debate on European accounting regulation. It seems that one of the main reasons that this was possible was the way EAR grew out of earlier initiatives by the EAA such as the Newsletter, the annual doctoral colloquium and the EIASM accounting workshops. The journal was thus a product of the development of a community of accounting researchers in Europe. In turn it began to play a constructive role in contributing to the further development of the accounting research community in Europe. During its first decade, the period on which our analysis concentrates, the European Accounting Review has acted to develop the idea of European accounting research in a research environment which has tended, at the international level, to be dominated by the Anglo-Saxon countries. EAR has tried to become a journal for European academics, and to be sensitive to European issues while being published in English. Being published in English, it thus directly competes for submissions and for readers in the global market for accountancy journals. In this way it has acted as one of the catalysts in the process of internationalization of the European academic accounting community. After the reform of 1999, the structure and aims of the journal are now more tightly focused on being a successful academic research journal, and less on playing a role as a forum for information and discussion. In this article we hope that we can contribute to celebrating the 25th anniversary of the EAA and reflect on EAR s future role in a world where the focus in both research and practice in accounting is more and more at the ‘global’ level.

A research note

Abstract The paper contributes to the research agenda of studies on accounting measurement by suggesting that incremental change is taking place in IFRS which has the effect of moving recognition of assets and liabilities to an earlier point in the transaction cycle. This is manifested in recognition of executory contracts and changes in economic state in some standards. The professional debate about fair value obscures the underlying boundary shift. Fair value is used to simulate completion of the transaction cycle. The use of fair value in this way is accompanied by a change in emphasis as to how reliability should be construed, with representational faithfulness being advanced over verifiability. The recognition of income and expense earlier in the cycle is corrected on final realization, so the overall profits or losses of the entity are not changed, although recognition may take place in different periods than under historical cost.

Creating a supranational institution: the role of the individual and the mood of the times

This study notes that, while the research literature which addresses accounting change in different countries is preoccupied with issues such as economic and legal environment, culture and consensus, research in accounting history recognizes, in biographical studies, the role sometimes played by individuals in influencing the outcomes in moments where change takes place. The article looks at the case of the creation of the International Accounting Standards Committee and analyses the evidence concerning the roles of the central individuals, Henry Benson, Douglas Morpeth and Wally Olson. It concludes that while it is difficult to disentangle the strands of institutional politics and responses to prevailing policy issues, the individuals concerned did play major roles and there is a case for the intervention of individuals to be considered in the international accounting literature as one of the issues that helps build accounting infrastructure.

The effects of accounting standards – a comment

This paper brings together the comments made by the European Accounting Associations Financial Reporting Standards Committee to a discussion paper (DP) issued by European Financial Reporting Advisory Group/UK Accounting Standards Board (ASB). It analyses the content of the DP and then discusses what effects should be considered. It considers that all effects should be evaluated, irrespective of whether they normally fall within the standard-setters purlieu, and provides a taxonomy of effects. It illustrates the difficulty of determining what effects should be considered by the standard-setter. The paper then discusses when effects should be reviewed. It agrees with the DP that effects need to be considered from inception of the project. It disagrees that the standard-setter should necessarily be responsible for all of the effects analysis. It argues that effects are likely to be different by geographical region and industry sector, and recourse should be had to national standard-setters and other organisations. While preparers may make representations about effects during the due process, these are not likely to be a representative sample. The paper suggests that in particular post-implementation reviews are better carried out independently. It observes that the DP does not address the practicalities of carrying out research in this area.

IFRS in Europe – An Observer's Perspective of the Next 10 Years

Abstract What follows is a personal reflection on the challenges that may face the International Financial Reporting Standards (IFRS) Foundation in the next 10 years, and is based on two conference presentations and the debate at those conferences. The suggestion is that the character of the members of the International Accounting Standards Board (IASB) in its second decade is different from that of the founding board, and is more pragmatic than crusading. It is mooted that the board will need to address second-order issues of the organisation and policy, and that Europe will try to take a more influential role. The article observes that existing issues of funding, complexity and differential reporting may become more urgent and will need to be addressed for the organisation to continue to evolve.

European Accounting Research – A Comment

A paper published in a British journal (Chan et al., 2006) attempted to rank accounting research output across Europe through the metric of published articles in refereed journals. One of its findings was that, for the period 1991–2002, 24 of the top 25 researchers in Europe were British (or Anglophone). As the editor of a European accounting journal and someone who has been attending the European Accounting Association and other European conferences on accounting research for more than 25 years, this finding seems, to say the least, counter-intuitive. Leaving aside the question of the perversity of league tables and their abuse, it appears to be at least a misunderstanding of how accounting research in Europe is disseminated and calls for some comment. Essentially the methodology used in the article was to count articles in Englishlanguage academic journals, and had been developed from a US study. Such an intuitively unlikely finding would lead one to speculate that the methodology could not be transferred across borders. Hopwood (2008, p. 17) comments on current research trends:

The war, taxation and the Blackpool Tower Company

This paper explores the impact of the Great War on the Blackpool Tower Company (BTC), in particular on profits and taxation. It uses archival material on BTC to chart the impact on it of wartime imposed excess profits duty (EPD) and entertainments tax (ET) and the extent of its disclosures to shareholders on these and related subjects. BTC reacted to increased profits and new taxes by investing surpluses in War Loan, by varying dividends, and by reducing distributable profits through transfers to declared and secret reserves. It did not fully disclose to shareholders the impact of either EPD or ET.