Does the Mark-to-Model Fair Value Measure Make Assets Impairment Noisy?: A Literature Review

Tadeusz Dudycz and Jadwiga Praźników
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Tadeusz Dudycz: Faculty of Computer Science and Management, Wrocław University of Science and Technology, Wyb. Wyspiańskiego 27, 50-370 Wrocław, Poland
Jadwiga Praźników: Faculty of Computer Science and Management, Wrocław University of Science and Technology, Wyb. Wyspiańskiego 27, 50-370 Wrocław, Poland

Sustainability, 2020, vol. 12, issue 4, 1-24

Abstract: With the purpose of reporting high-quality, transparent, and comparable information in financial statements, there is a strong, visible trend towards the implementation and use of International Financial Reporting Standards (IFRS), which represent the Anglo-American accounting model. According to IFRS, the fair value has become a dominant measurement paradigm. The purpose of this paper is to examine the implications of the implementation of the mark-to-model fair value measures for asset impairment tests on the relevance and reliability of information presented in financial reports. Among the three levels of the fair value hierarchy, mark-to-model is most controversial because it is susceptible to manipulation and has poor verifiability. After a systematic literature review and a synthesis of high-quality contributions in this field, we conclude that the implementation of asset impairment tests, that use the mark-to-model fair value measures, is not promising for increasing the quality and reliability of the information presented in financial statements. Unfortunately, research has shown that companies are using that tool to manage their earnings and promote managers’ unethical behaviour. Furthermore, capital markets’ reaction to asset impairment announcements is negative. Performed analysis can provide valuable pointers for standard setters, accounting policy makers, and researchers.

Keywords: IFRS; asset impairment; earnings management; accounting models; asset write-offs; fair value; mark-to-model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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