The recent financial crisis has demonstrated that fair value accounting can affect not only the informational importance of annual reports but also a company’s financial integrity. In regulatory structures where standards of company law prompt companies to maintain minimum amounts of capital (or an equilibrium between assets and liabilities) the reporting of unrealised losses may reduce company share capital to a level below minimum thresholds. If fair value losses are transitory and do not reflect an actual lowering of a company’s assets’ worth, fair value accounting may still prompt shareholders to consider an unnecessary recapitalisation or the “premature” dissolution of a firm. The negative consequences arising from interaction between fair value and the legal capital rules can be prevented by neutralising (through appropriate rectifications of reported balances) fair value profits and losses for the sole purpose of respecting the provisions for share capital maintenance. This solution would make it possible to limit the impact of accounting rules on companies’ capital without prejudicing the informational importance of annual reports.

The IAS/IFRS after the crisis: limiting the impact of fair value accounting on companies’ capital

STRAMPELLI, GIOVANNI
2011

Abstract

The recent financial crisis has demonstrated that fair value accounting can affect not only the informational importance of annual reports but also a company’s financial integrity. In regulatory structures where standards of company law prompt companies to maintain minimum amounts of capital (or an equilibrium between assets and liabilities) the reporting of unrealised losses may reduce company share capital to a level below minimum thresholds. If fair value losses are transitory and do not reflect an actual lowering of a company’s assets’ worth, fair value accounting may still prompt shareholders to consider an unnecessary recapitalisation or the “premature” dissolution of a firm. The negative consequences arising from interaction between fair value and the legal capital rules can be prevented by neutralising (through appropriate rectifications of reported balances) fair value profits and losses for the sole purpose of respecting the provisions for share capital maintenance. This solution would make it possible to limit the impact of accounting rules on companies’ capital without prejudicing the informational importance of annual reports.
2011
Strampelli, Giovanni
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3718402
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact