IFRS Fair Value Measurement and Accounting Policy Choice in the United Kingdom and Australia

Abstract

This study investigates the use of fair value measurement by 228 listed companies in the UK and Australia around the time of adoption of IFRS from 1 January 2005. We test whether within and between country comparability in policy choices (as measured by T indices) has changed in relation to (a) mandatory and (b) optional use of fair value measurement. Mandatory requirements related to financial instruments (IAS 39) and share-based payments (IFRS 2) have increased comparability. Increases in comparability for agricultural assets (IAS 41) were not significant. In relation to the optional use of fair value, comparability increased in relation to property (IAS 16) because some companies discontinued fair value measurement. Under IAS 39, the fair value option for other financial assets decreased comparability. Options to use fair value in other areas (financial liabilities, investment properties, intangible assets and plant and equipment) are not generally taken up, either for on-going measurement or on IFRS adoption (under the 'deemed cost' option). The results suggest a conservative approach and/or lack of incentives to use fair value measurement for most companies. Some banks and insurance companies are an exception for financial assets as are Australian property companies.

Keywords: Fair value measurement, accounting policy choice, within country comparability, between country comparability, T index

JEL Classification: M41, M44, M47