Finance and Accounting:
For the assignment, you are required to choose a company that operates in one of the following three business sectors:
• Pharmaceutical • Power generation •
Telecommunications The company you select should have its equity share capital listed
Project description:
Essay should provide the entry value,exit value and fair value and i suppose you use BT as the example of the annual report, theres a link about IFRS 13 Fair Value
Measurement https://www.iasplus.com/en/standards/ifrs/ifrs13 re
Course Assignment:
For the assignment, you are required to choose a company that operates in one of the following three business sectors:
Pharmaceutical
Power generation
Telecommunications
The company you select should have its equity share capital listed on a stock exchange. It should publish its annual financial statements and annual report in English, and the most recent financial statements and report in English should be accessible on the companyas website. If the company operates in several business sectors, its main activity should be one of the three business sectors listed above. If you are uncertain whether your chosen company meets these requirements, please check with the course co-ordinator.
You are required to write a report of around 2,000 words (excluding the reference list and excluding any factual material about the company included in appendices), which covers the following three aspects:
(a) Identify the principal types of non-current (fixed) asset owned by your chosen company (depending on the company chosen, these may be intangibles or tangibles, or both a if there are many different types of non-current asset, restrict your report to the three most significant types of asset).
(b) Discuss the problems that your chosen company is likely to have to deal with in order to measure the fair value of the types of asset you have identified.
(c) Comment on whether the IASBas approach to fair value measurement is actually practical for companies with non-current assets that are not actively traded on broad and deep markets.
In writing your report, the following guidance may be helpful:
(1) A report will normally have an introduction, several sections each with an appropriate heading or title, and a conclusion.
(2) The context of the assignment is the International Accounting Standards Boardas preferred measurement basis for financial reporting, which is fair value. This is defined in IFRS 13 Fair value measurement as athe price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.a The IASB makes it clear that fair value is a market-based measurement, not an entity-specific measurement. This may make sense for an item that is actively traded on broad and deep markets, but it is more of a problem for items that are not actively traded.
(3) A useful summary of IFRS 13 is available from the IAS Plus website: https://www.iasplus.com/standard/ifrs13.htm. It is worth looking at this summary to note some of the issues involved in fair value measurement. In particular, think about the need for fair value measurements to be amarket-baseda rather than aentity-specifica. That is, the measurements should reflect the ahighest and best usea of an asset from the perspective of amarket participantsa, and should not take into account any special benefits that a particular owner can achieve.
(4) The three sectors suggested all have companies with significant non-current assets that are highly specific to the companies concerned. Although it is unlikely that the assets need to be measured at fair value on a recurring basis for financial reporting purposes, companies must assess whether there has been an impairment that would require the carrying value of a specific asset to be reduced. One of the bases of assessing the new amount at which the asset is shown is fair value. Hence, your chosen company may disclose information about how it determines fair value for impairment testing purposes, even if it does not actually report many assets in its balance sheet at fair value.
(5) The various articles listed under Topic 4 a Recognition and measurement: Fair values a are relevant to this assignment. Some additional articles are listed below.
All of these articles are available on the course Moodle page.
a. A general review of the theoretical justification for fair value measurement is provided by:
Hitz, J.-M. (2007), The decision-usefulness of fair value accounting a a theoretical perspective, European Accounting Review, Vol. 16, No. 2, pp. 323-362.
b. A more critical theoretical view is given by:
Biondi, Y. (2011), The pure logic of accounting: A critique of the fair value revolution, Accounting, Economics, and Law, Vol. 1, No. 1, Art. 7 (available at:
https://hal.archives-ouvertes.fr/docs/00/56/18/94/PDF/viewcontent.pdf).
c. There is relatively little literature specifically about non-financial assets and fair value. A paper that supports the use of fair values for property, plant and equipment, but notes problems with the verifiability of fair value measurements for such assets is:
Herrmann, D., Saudagaran, S. M. & Thomas, W. B. (2006), The quality of fair value measures for property, plant, and equipment, Accounting Forum, Vol. 30, No. 1, pp. 43-59.
d. A recent survey of actual reporting practice by UK and German companies, is provided by two researchers at the University of Chicago:
Christensen, H. B. & Nicolaev, V. V. (2011), Does fair value accounting for non-financial assets pass the market test? Review of Accounting Studies, Vol. 18, No. 3, pp. 734-775.
These researchers suggest that most German and UK companies use historical cost for property, plant and equipment, except for investment properties. Use of fair value as a main measurement method is rare.
You will be assessed in part on the quality of your arguments and how you use relevant evidence to support your arguments and your conclusions. The references in this note are provided to get you started, but you are encouraged to explore other material.