Article Annotation
Hitz, Joerg-Markus., 2007, ‘The Decision Usefulness of Fair Value Accounting – a Theoretical Perspective’, European Accounting Review, vol.16, no.2, pp.323-362.
In this article Hitz provides detailed overview and critical analysis of recent standards on financial instruments. Special attention is paid to decision usefulness as the author argues that decision relevance of fair value can be justified from the valuation perspective and the information perspective. Hitz believes both perspectives are equally important. Nevertheless, Hitz discusses decision usefulness from theoretical perspective. The author uses data gained through economic analysis and tries to analyze the potential usefulness of fair value measurement. The research focuses on the evaluation of the theoretical soundness of the key arguments. The central argument is that the importance of fair value is increasing and modern business world is characterized by ongoing shifts in financial reporting standards. More and more companies refer to fair-value-based reporting. Actually, such shift is claimed to be driven by the presumed decision relevance of market-based measures.
The article is useful to my research topic as the authors discusses benefits and effectiveness of fair-value-based reporting and stresses why it is better to refer to this financial reporting system. The main limitation of the article is that the author discusses decision usefulness only from theoretical perspective. I think that more attention should be paid to practical application. Thus, Hitz calls for more research to be taken in the filed of financial reporting systems. The article will not form the basis of my research, but it will be useful supplementary information for my research on financial reporting system and, in particular, on decision usefulness of fair-value-based reporting.
