Name: William Andrew G.

Bulaqueña Course: MSA-IA

Subject: MMA 605 Date: September 14, 2018
Topic: Fair Value Accounting
Role: Discussant

Enhancing Shareholder Value through Fair Value Accounting

An Analysis Paper of “Valuation in the fair value era.
Higher Quality can help companies reduce risk and enhance shareholder value”
By Greg Forsythe

I. SUMMARY

The article discusses on the importance of higher quality fair value

measurement in the reduction of risks and enhancement of shareholder value.
The rapid evolution of fair value accounting is now putting pressure on
companies to provide “measurements and disclosures that are consistent,
supportable, and auditable” (Forsythe, 2015). However, there are a lot of
complexities in estimating fair value especially when there is limited information
which exposes companies to errors, misapplication, and even fraud. Hence,
there is a need for a higher quality and more consistent fair value measurement,
and its widespread education to mitigate regulatory and credibility risks leading
to the enhancement of shareholder value.
In the author’s discussion, the definition of fair value provided by US
GAAP and IFRS was shown before issues from the article were discussed.
There were two statements from the article of which the author showed her
affirmation. The first was on the poor implementation of fair value and weak
regulatory oversight which could produce misleading information posing high
risk to the entity. The second was on the need for stakeholders to be educated
on fair value to improve auditors’ ability to audit, increase reputation of valuation
and audit professions, and influence standard-setters and regulators.
The author disagreed with two statements of the article. The first
disagreement was on the idea that standard-setters should focus primarily on
the frequently traded instruments. The second was on the notion that only those
with business valuation credentials have the capability to perform valuations.

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 The author cited Philippine Seven Corporation as an example of a
company that uses fair value accounting on its financial instruments. Emphasis
was given on the valuation of transactions arising from customer loyalty
programs.
The author concluded the paper by posing a challenge on harmonization
in the measurement of fair value, and stating the need to continually monitor
changes in the standards as IFRS and US GAAP continues to work hand in
hand.

II. STRENGTHS AND LIMITATIONS

a. Strengths
One major strength of the paper is the wise and relevant choice of article.
There are a lot of facts and important points of discussion which is relevant to
the accounting profession. It was interesting to know that there is a private
sector that is developing high-quality international valuation standards and, as
of the writing of the article, was currently formulating discussion papers aimed
at creating international professional standards for professional valuers. In
addition, the author was able to explain the topic in question, i.e. fair value, by
mentioning the definition provided by US GAAP and IFRS. This is especially
useful in the case where readers are not into accounting-related professions or
just simply, when accounting-related professionals need a refresh on the
definition. Lastly, citing also the loyalty program of her employer-company and
discussing how it was recorded in the books is something that piques interest.

b. Limitations

The first limitation of the paper is the author’s usage of hand-picked

ideas from the article as a support to his or her opinion. The author’s paper was
meant to be a discussion and reaction to the major and minor issues of the
article. However, the author started the discussion with her opinion then
supported it by agreeing or disagreeing to the statements of the article. Ideally,

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discussions should have been triggered by the agreements or disagreements
of the author on the articles statements or issues. Moreover, agreements and
disagreements of the author about the statements of the article were not
thoroughly discussed as to why she agreed or disagreed to the statements.
Providing her opinion accompanied by observation, experience, and/or facts of
the could have convinced readers more of her stand.

Second, the structure of the paragraphs was not able to provide a natural
flow of the discussion of the author. There were a lot of ideas, majority are very
broad, in a paragraph that it was not easy to extract the main argument or
discussion. Also, major and minor issues were not distinguished which could
have made it easier for readers to get the gist of the discussion.

Third, there was a contradiction of ideas in the author’s paper. The

author wrote, “There is a need for valuation professionals who should be
capable and well-trained in financial reporting to do the valuation of a
company’s asset, liabilities and equity”. However, she also stated, “There are
individuals given the proper education but without the titles who can do
valuation if they have the knowledge, skills and expertise to do so.” In my
opinion and observation, to be considered a valuation professional, one needs
to acquire certain titles and business valuation credentials. Acquiring the
necessary knowledge, skills, and expertise can be in the form of training,
workshops, sessions, and/or further education, of which business valuation
credentials can be acquired. Hence, titles and credentials should not be
discredited.

There were potential misinterpretations by the author of ideas provided

by the article. For example, the article stated:

“In the US, a few among them have years of experience operating in the
financial reporting arena and may carry credentials such as Chartered
Financial Analyst®, Accredited Senior Appraiser of the American Society of

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 Appraisers, or the Accredited in Business Valuation credential (issued by
the AICPA).”

The author disagreed by saying, “I disagree that only those with

business valuation credentials (CFA, ASA) has the capability in valuing
company assets, liabilities and equity.” In my opinion, the article did not connote
that only those with business credentials were capable of being valuers. It may
be that there is a lack by the author of clarifying in what sense she is
disagreeing.

Lastly, there were also statements that were taken directly from the
article but was not cited properly. The statement is, “In addition, educating
business leaders and company executives regarding valuation should help
them understand the need for, and value of, qualified fair value specialists when
developing fair value estimates, whether employed internally or engaged
externally.” Citing external sources in any written literature is very important
especially when it is covered by a copyright.

III. RECOMMENDATIONS

Writing a write-up or critique of an article is a daunting task given the

constraints in time and work. In the future write-ups of the author, it would be
beneficial to consider the following:
 In the discussion, it is advised that the structure, content and
order of the sentences should be organized and formulated in a
way that promotes a natural flow of information.
 Consider segregating the major and minor issues of the article
and start the discussion from them.
 It is also noteworthy to thoroughly explain agreements and
disagreements of the author accompanied by observation,
experiences, and facts, if possible.

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  Review some parts of the paper to minimize grammatical,
spelling, and punctuation errors.
IV. BIBLIOGRAPHY

Forseythe, G. (2015). Valuation in the fair value era. Higher quality can help
companies reduce risk and enhance shareholder value. Retrieved from
https://www2.deloitte.com/us/en/pages/advisory/articles/valuation-fair-
value-article.html