In order to capture fair value orientation, I have to assess the importance of fair value measurement relative to the importance of other measurement concepts. Nobes (2001) sug-gests different classifications of asset measurement bases. One is the distinction between past and current measurement bases. The only past measurement base is historical cost, while fair value belongs to the group of current measurement bases. Following the 2005 IASB discus-sion paper about measurement bases for financial accounting, I identify as current measument bases besides fair value: (1) current cost and its two forms, reproduction cost and re-placement cost, (2) net realizable value, and (3) value in use. Deprival value and recoverable amount are not included because they are combinations of measurement bases. Furthermore, present value in not included because it does not represent a measurement base but a tech-nique that can be used to estimate measurement bases (IASB 2005: par. 66–96).
Fair value and its sub-concept, fair value less costs to sell, were used in IFRS under dif-ferent names for some time: (1) until the issuance of IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations) in March 2004 fair value less costs to sell was called net selling price, and (2) until the issuance of IFRS 13 (Fair Value Measurement) in May 2011 in some cases the term market value was used instead of fair value. When I examine in the fol-lowing the importance of fair value measurement, this actually comprises fair value, market
value, fair value less costs to sell, and net selling price. The full classification of measurement bases that I use in this paper is illustrated in Figure 3.
[Figure 3 about here]
I want to evaluate the frequency of terms related to the different measurement concepts in all standard-year observations. Searching for the respective major terms alone is not suffi-cient. For example, the term “historical cost” is rarely used in IFRS. Instead, it is often stated that an item should be measured “at cost”. On the other hand, the term “fair value” is used in numerous contexts. Therefore, I decide to search for specific phrases that can usually be found in a measurement context. I define fair value measurement terms as all possible combi-nations of the prefixes “at”, “at its”, “at the” and “at their” on the one hand with the terms
“fair value”, “market value” and “net selling price” on the other hand.2 Other current meas-urement terms are defined as all possible combinations of the prefixes “at”, “at its”, “at the”
and “at their” on the one hand with the terms “current cost”, “replacement cost”, “reproduc-tion cost”, “net realisable value” and “value in use” on the other hand. Historical cost meas-urement terms are defined as all possible combinations of the prefixes “at”, “at its”, “at the”
and “at their” on the one hand with the terms “cost”, “historical cost”, “amortised cost” and
“depreciated cost” on the other hand. The construction of the measurement terms is summa-rized in Figure 4.3
[Figure 4 about here]
Figure 5 and Table 3 show the overall development of fair value orientation based on measurement terms. The frequency of fair value terms in the IFRS universe increases consid-erably from 106 in 2001 to 339 in 2013 (+219.8%). In 2001, fair value terms can be found in 59% of the standards, while in 2013 85% of all standards contain such terms. The frequency of other current value terms is small and constant over time (7). In the frequency of historical
2 The term “fair value less costs to sell” is not listed as its appearance is covered by searching for “fair value”.
3 I search for “amortised cost” and “net realisable value” because these are the British forms of writing used in IFRS.
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cost terms, I observe an increase from 70 in 2001 to 100 in 2013 (+42.9%). %FV_MT is the share of fair value terms based on all measurement terms. It increases by 31.3% between 2001 and 2013, indicating an increase in the fair value orientation of IFRS over time.
[Figure 5 about here]
[Table 3 about here]
In order to add to the robustness of my analysis, I offer an alternative measure for fair value orientation: the frequency of the single term “fair value” relative to the frequency of the single term “cost”. This measure is more simple and straightforward on the one hand but probably induces more noise on the other hand because the terms “fair value” and “cost” are used in various contexts besides measurement bases.
Figure 6 and Table 4 show the overall development of fair value orientation based on the terms “fair value” and “cost”. The frequency of the term “fair value” in the IFRS universe increases from 645 in 2001 to 1,568 in 2013 (+143.1%). In 2001, the term “fair value” can be found in 65% of the standards, while in 2013 90% of all standards contain this term. In the frequency of the term “cost” I observe an increase from 985 in 2001 to 1,261 in 2013 (+28.0%). %FV_CO is the frequency of the term “fair value” divided by the sum of the fre-quencies of the terms “fair value” and “cost”. It increases by 39.9% between 2001 and 2013.
Compared to my first measure, the overall increase of fair value orientation is even more pro-nounced when using my alternative measure.
[Figure 6 about here]
[Table 4 about here]
3 IASB member characteristics