Voluntary Fair Value Disclosures Beyond SFAS 157’s Three-level Estimates

61 Pages Posted: 31 Jan 2009 Last revised: 9 Oct 2016

Sung Gon Chung

Wayne State University

Beng Wee Goh

Singapore Management University - School of Accountancy

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Kevin Ow Yong

Peking University

Date Written: October 1, 2016

Abstract

Some firms voluntarily make disclosures about the controls and processes in place to ensure the reliability of fair value estimates. Consistent with these disclosures being driven by investors’ concerns about the reliability of their SFAS 157 estimates, we find that firms with more opaque estimates are more likely to provide such disclosures. We then examine whether these disclosures improve investors’ perception about the reliability of fair value estimates. We find that they are associated with higher market pricing and lower information risk for Level 3 estimates. Further analyses of the reliability disclosures reveal that the following types of information are particularly important to investors: discussion of the external and independent pricing of fair value estimates as well as the estimates’ proper classification according to the SFAS 157 hierarchy. Overall, our results suggest that the voluntary reliability disclosures that firms provide beyond SFAS 157’s three-level estimates help reduce investors’ uncertainty toward the more opaque fair value estimates.

Keywords: Fair value accounting, SFAS 157, voluntary disclosure, controls, information risk

JEL Classification: D82, G29, G34, M41

Suggested Citation

Chung, Sung Gon and Goh, Beng Wee and Ng, Jeffrey and Yong, Kevin Ow, Voluntary Fair Value Disclosures Beyond SFAS 157’s Three-level Estimates (October 1, 2016). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1335848 or http://dx.doi.org/10.2139/ssrn.1335848

Sung Gon Chung

Wayne State University ( email )

5229 Cass
112 Rands House
Detroit, MI 48202
United States

Beng Wee Goh

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Jeffrey Ng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Kevin Ow Yong

Peking University ( email )

University Town
Shenzhen, 518055
China

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