DOI: https://doi.org/10.15587/2312-8372.2018.124416

Investigation of the existing methodology of value estimation and methods of discount rate estimation

Iryna Plikus

Abstract


The subject of research is the current practice of determining the fair value of assets and liabilities at the present (discounted) cost. One of the most problematic places is the determination of the discount rate, which belongs to the jurisdiction of a professional accountant judgment.

The methods of formalization, hypothetical assumption, system approach and scientific abstraction in substantiating the formation of accounting policy with respect to the choice of the discount rate are used in the research.

The results of the study have shown that fair value measurement using discounting can reduce the quality of financial reporting for subjectivity when choosing methods for its valuation and the discount rate. An algorithm is proposed in the choice of methods for fair value estimation, which allows to more reliably determine the real value of accounting objects and elements of financial reporting. Thanks to this, it is possible to simulate the process of calculating the cost of objects, by sequentially identifying an adjustment to the aggregation of value values. Proceeding from the desire to minimize the influence of professional judgments on the financial reporting indicators, the feasibility of determining the future cash flow with the terms of the contract is justified. For the purposes of the following estimates of this asset or liability, it is necessary to calculate the discount rate. Based on the mathematical dependence of the present value of the future cash flow with its nominal value and the discount rate, a formula for calculating the discount rate is proposed. In comparison with similar studies, such discount rate is the actual rate agreed by the parties to the contract, agreeing on the terms and amount of payments. This provides an opportunity to minimize the impact of professional accounting judgments on the reliability level of financial reporting.


Keywords


algorithm for choosing methods for fair value estimation; estimation of discount rate; calculation of discount rate

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References


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GOST Style Citations


Official website of IFRS Foundation. URL: http://www.ifrs.org (Last accessed: 16.01.2018).

Lustosa P. R. B. The Fairness of Fair Value: SFAS 157, Irving Fisher and GECON // SSRN Electronic Journal. 2011. doi:10.2139/ssrn.1814176 

Christensen H. B., Nikolaev V. V. Does Fair Value Accounting for Non-Financial Assets Pass the Market Test? // SSRN Electronic Journal. 2012. doi:10.2139/ssrn.1269515 

Herrmann D., Thomas W. B., Saudagaran S. M. The Quality of Fair Value Measures for Property, Plant, and Equipment Accounting Forum // SSRN Electronic Journal. 2005. doi:10.2139/ssrn.312150 

Landsman W. R. Fair Value Accounting for Financial Instruments: Some Implications for Bank Regulation // BIS Working Paper. 2006. No. 209. doi:10.2139/ssrn.947569 

Da Silva J. M., Rezende A. J., Braunbeck G. O. Judgment of the Relevance of Fair Value in Biological Assets: A Experimental Analysis on the Market Perception Versus the Academic Perception // SSRN Electronic Journal. 2016. doi:10.2139/ssrn.2803418 

Analysis of Change in Present Value Measurements / Bradshaw J. H. et al. // SSRN Electronic Journal. 2005. doi:10.2139/ssrn.1286942 

Ji K. Some Rates are Better than Others // Journal of Applied Research in Accounting and Finance. 2010. Vol. 5, No. 2. P. 14–25. doi:10.2139/ssrn.1535678 

Swinkels L. A. P. The Case for Local Fair Value Discount Rates Under IFRS // SSRN Electronic Journal. 2011. doi:10.2139/ssrn.1762291 

Anantharaman D., Henderson D. Understanding Pension Liabilities: A Closer Examination of Discount Rates // SSRN Electronic Journal. 2016. doi:10.2139/ssrn.2864447 

Tereshchenko O. The discount rate: the problems of calculation and the ways of their solution // The World of Finance. 2006. Vol. 4, No. 9. P. 144–150.

International Valuation Standards. December 2016. URL: https://www.ivsc.org/files/file/view/id/812 (Last accessed: 16.01.2018).

Mizhnarodnyi standart finansovoi zvitnosti 13 «Otsinka spravedlyvoi vartosti» // Zakonodavstvo Ukrainy. 2013. URL: http://zakon0.rada.gov.ua/laws/show/929_068 (Last accessed: 16.01.2018).

RICS Rating Standards. Moscow: Alpina Pablishers, 2011. 188 p.

Kontseptualna osnova finansovoi zvitnosti // Zakonodavstvo Ukrainy. 2010. URL: http://zakon3.rada.gov.ua/laws/show/929_009 (Last accessed: 16.01.2018).

Derun I. Vykorystannya spravedlyvoyi vartosti v bukhhalterskomu obliku neoborotnykh aktyviv // Bukhhalterskyy oblik i audyt. 2012. Vol. 12. P. 20–27.

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Mizhnarodni standarty finansovoyi zvitnosti // Zakonodavstvo Ukrainy. 2011. URL: http://zakon2.rada.gov.ua/laws/show/929_010 (Last accessed: 16.01.2018).

Rohova N. V. Bukhhalterskyi oblik dyskontuvannia zoboviazan: problemy realizatsii v umovakh MSFZ // Naukovyi visnyk Poltavskoho universytetu ekonomiky i torhivli. 2014. Vol. 4 (66). P. 193–197.

Dvorakova D. Developments in Fair Value Measurement: Some IFRS 13 View // Recent Researches in Applied Economics. 2011. P. 151–156. URL: http://www.wseas.us/e-library/conferences/2011/Iasi/AEBD/AEBD-25.pdf (Last accessed: 16.01.2018).

Ralko A. S. Metody opredelenyya stavky dyskontyrovanyya // Naukovyi visnyk Mizhnarodnoho humanitarnoho universytetu. 2015. P. 150.

Lesnova Yu. V. Diskontirovanie kak sposob opredeleniya spravedlivoy stoimosti dlya tseley MSFO // Korporativnaya finansovaya otchetnost'. Mezhdunarodnye standarty. 2014. Vol. 10. URL: https://finacademy.net/materials/article/diskontirovanie-sposob-opredeleniya-stoimosti (Last accessed: 16.01.2018).

Liliuk K. V. Vyznachennia stavky dyskontuvannia // Visnyk NTU «KhPI». 2015. Vol. 53 (1162). P. 33–36.







Copyright (c) 2018 Iryna Plikus

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ISSN (print) 2664-9969, ISSN (on-line) 2706-5448