CPA Journal accepts business professors' fair value study

Wayne State University School of Business accounting professors join forces to tackle the reliability of fair value accounting.

Sung Gon Chung, assistant professor of accounting, Cheol Lee, assistant professor of accounting, and Santanu Mitra, associate professor of accounting, had their study, titled “Reliability concern over the more opaque level 3 fair value estimates in financial statements,” accepted for publication in the CPA Journal. The journal is a resource for practitioners, educators, regulators and other financial professionals. The goal of the journal is to provide “readers with insight and analysis on developments in the areas of accounting, auditing, taxation, finance, management, technology and professional ethics.”

A full abstract of the article is below.


Reliability concern over the more opaque level 3 fair value estimates in financial statements


Fair value accounting is currently a contentious issue among regulators and accounting practitioners. Proponents of fair value accounting argue that expanding fair value accounting rules will make the reported accounting information more relevant to users. In contrast, opponents of fair value accounting raised significant concern that fair value accounting would impair the reliability of reported financial information because fair value accounting often relies on subjectivity in measuring the value of various financial statement items. The fair-valued assets that are subjectively measured by management (i.e., the level 3 assets) are reported in the financial statements following the adoption of Statement of Financial Accounting Standards No. 157, Fair Value Measurements. Many accounting studies have examined how the reported fair-value of level 3 assets that have significant opacity in their measurement process are perceived and evaluated by the stock market participants and other users such as investors, analysts, and auditors. We review six major studies in this area and analyze research findings and their implication. Our discussion provides additional insights to regulators and accounting practitioners, and helps understand the ongoing debate over fair value accounting in the backdrop of relevance versus reliability criteria of accounting information.

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