Problematising the decision-usefulness of fair values: empirical evidence from UK financial analysts

In its recently revised conceptual framework, the IASB re-affirms decision-usefulness as the objective of financial reporting, disregarding claims about its lack of coherence. In this paper, we examine how this notion of decision-usefulness works in practice by focusing on the case of fair value measurement. In particular, we explore how decision-usefulness is perceived and experienced by financial analysts when using fair values in their work. We use the frame of ‘problematisation’, which involves challenging assumptions in existing literature, to formulate our research question and to interpret our findings. Empirical evidence, drawn from interviews with UK financial analysts and comment letters analysts wrote to the IASB, puts into question three key assumptions inherent in the revised conceptual framework. First, fair values are not considered to be unquestionably useful to decision-making; second, this usefulness is found to be contingent on the context of the decision being made; and third, the qualitative characteristics required to achieve decision-usefulness are challenged for their lack of meaning. Analysts’ testimonies also challenge taken-for- granted assumptions implicit in academic studies. Assumptions that the decision-usefulness of fair values can be established prior to practice are re-evaluated. We also reflect on the premise that the decision-usefulness of fair values can be challenged on its underlying market-based economic rationales. Overall, our findings contribute to thinking problematically about decision-usefulness which appears to be contingent rather than given by some Q1 predetermined ideals as envisaged in accounting conceptual frameworks

Accounting at the London School of Economics

Given the aims of the founders of the London School of Economics, it is not surprising that accounting should have been taught at the School from soon after its establishment. An early focus on teaching practical accounting, with professional practitioners as teachers, was gradually supplanted by approaches informed by the economics of decision-making in conditions of scarce resources. By the 1930s, the Department of Business Administration provided an intellectual basis for thinking about financial reporting and costing that challenged taken-for-granted practices. After World War II, the “LSE Triumvirate” of William Baxter, Harold Edey and David Solomons took forward ideas of opportunity cost and value to the owner as core theoretical concepts, while developing undergraduate and later postgraduate programmes that provided rigorous education for future accountants, administrators, business people and academics. However, the focus on education, and the weak infrastructure for accounting research in the UK had the unintended consequence that, by the early 1970s, the Department of Accounting did not have the opportunity of responding to changes in research focus in North America, which were influenced by developments in financial economics