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Abstract
[12:31, 21/05/2024] Nehal Arafa: The major objective of this study is to evaluate Full Fair Value (FFV) approach as a measurement basis. In order to achieve that objective, a theoretical and an empirical evaluation are performed. The theoretical evaluation is based on a set of criteria which are developed from the objectives of financial reporting, the qualitative characteristics of financial information, and the definitions of the elements of financial statements. This is beside some other criteria set out in accounting literature. The results of the evaluation reveal that FFV model fulfills all predetermined criteria. It fulfills the decision usefulness objective. It provides more relevant information compared to PFV model. It is more understandable as it reflects the economic reality of events and transactions. It is very reliable as long as market inputs are used in valuation. FFV, when also reliably measured, enhances the comparability of information. The implementation of a FFV model incur significant costs to collect, adapt, and present fair value data. However, it’s only one-time costs. The benefits from having more reliable, consistent, and comparable fair value information should be ongoing. The FFV model also supports the asset/liability view, which proves the superiority of an income concept based on changes in net worth over one based on matching costs and revenues. The evaluation also revealed that, under FFV basis, assets and liabilities would be carried in the balance sheet at their value to a going concern. Finally, FFV model highly contributes to the maintenance of a real financial capital, which is inconsistent with a historical cost model, except when general and relative prices are constant, which is rarely the case. An empirical evaluation of FFV approach is then performed to test the robustness of the theoretical conclusion achieved. The results of the statistical tests of the hypotheses indicate that, FFV basis provides incremental explanatory power for the earning per share. It better reflects the value of the company, and it partially improves the operating performance and financial conditions ratios relative to PFV model. Thus, the theoretical and the empirical FFV evaluations provide support for fair value proponents’ claims that it provides relevant information; as it better reflects the underlying economic conditions of the firm.