Implications for Users of Financial Statements
1.1 Groundwork 1.1.1 Background and motivation for the study “Fair is foul, and foul is fair.” William Shakespeare in Macbeth, Act 1.1.11 This statement is probably the most significant line from the famous William Shakespeare play “Macbeth”. It suggests that things are not always as they seem on the first sight and that good things (fair) can sometimes turn out to be bad (foul) and vice versa. Also centu- ries later, the statement is still valid when it is transferred to the recent developments in financial accounting. According to this, the basic shift from local GAAP accounting sys- tems to the International Financial Reporting Standards (IFRS) in most European coun- tries1 provided the preparers of financial statements with an option that was not that common before under local GAAP requirements. To date, fair value accounting for cer- tain assets and liabilities is viewed as a major feature of IFRS and several standards either require balance sheet items to be measured at fair value or at least provide an option to fair value measurement instead of applying historical cost accounting. Besides the fact that the fair value approach, since its first appearance, has long been subject of academic re- search, the recent financial crisis has turned the amplified attention on fair value account- ing and led to a considerable policy debate involving among others the U.S. congress, the European Commission, and banking and accounting regulators (Laux/Leuz (2009), p. 826). Fair values in financial statements were blamed of being rather foul than...
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