The Worth of Fair Value Accounting: Dissonance between

Users and Standard Setters*

OMIROS GEORGIOU, University of Manchester†

ABSTRACT
Investors and analysts are designated as the primary users of financial reports by standard
setters, yet we know very little about their use of accounting information and about their
relationship with standard setters. This paper explores how investors and analysts evaluate
the usefulness of fair values to their work. Standard setters typically presume that investors
and analysts view accounting as a practice of valuation and, therefore, favor the greater use
of fair value measurement. However, using interview evidence, it is shown here that inves-
tors and analysts expect accounting to provide them with insights into the performance of a
business, and are quite cautious about the limits of using fair values in financial reports.
Overall, the paper contributes to a better understanding of the relationship between
accounting and its users. It adds specifically to research which has analyzed the disconnect
between users and standard setters in terms of standard setters ignoring user needs (Young
2006), and in terms of users being indifferent about, or uncritical of, outcomes of standard-
setting processes (Durocher, Fortin, and Cote 2007; Durocher and Gendron 2011). The
paper suggests a re-theorization of the disconnect between the two groups that involves
thinking away from tension, or blame. Drawing on the work of David Stark (2009), the sit-
uation observed is conceptualized as one of “dissonance,” where the different ways of eval-
uating fair values coexist without being involved in a fierce contest. That is, even though
the principles of valuation and performance differ, this difference does not lead to open dis-
agreement and political lobbying from investors and analysts. Consequences of this disso-
nance to our understandings of the (absence of) worth of fair values in capital markets are
discussed.

Le merite de la comptabilite a la juste valeur : discordance entre

utilisateurs et normalisateurs

RESUM 
E
Investisseurs et analystes sont reconnus comme etant les principaux utilisateurs des rapports
financiers des normalisateurs; nous en savons pourtant tres peu au sujet de l’utilisation
qu’ils font de l’information comptable et de leur relation avec les normalisateurs. L’auteur
se demande comment les investisseurs et les analystes evaluent l’utilite des justes valeurs
dans leur travail. De facßon generale, les normalisateurs presupposent que les investisseurs
et les analystes tiennent la comptabilite pour un exercice d’ evaluation et, par consequent,
sont favorables a une utilisation accrue de l’evaluation a la juste valeur. Or, les donnees

* Accepted by Yves Gendron. I am immensely grateful to those who participated in interviews for their hospital-
ity and interest in my research. I thank Yves Gendron, two anonymous reviewers, Marcia Annisette, Yasmine
Chahed, Matthew Gill, Matthew Hall, Chris Humphrey, Lisa Jack, Andrea Mennicken, Michael Power, and
Crawford Spence for their helpful comments and suggestions on earlier drafts of the paper. I also acknowledge
the comments from seminar participants at the London School of Economics and Political Science, the
Manchester Business School, and the Warwick Business School, and from conference participants at the 2013
European Accounting Association Conference (Paris), the 2013 Financial Reporting and Auditing as Social and
Organizational Practice (London), and the 2015 Alternative Accounts Conference (Ottawa).
† Corresponding author.

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que recueille l’auteur dans le cadre d’entrevues revelent que les investisseurs et les analystes
s’attendent a ce que la comptabilite les renseigne sur la performance de l’entreprise et que
les limites de l’utilisation des justes valeurs dans les rapports financiers leur inspirent une
assez grande prudence. Dans l’ensemble, l’etude contribue  a une meilleure comprehension
de la relation entre la comptabilite et ses utilisateurs. Elle enrichit plus precisement les
recherches qui portent sur l’analyse de l’ecart qui separe les utilisateurs des normalisateurs,
les seconds ignorant les besoins des premiers (Young, 2006) et les utilisateurs envisageant
les processus de normalisation avec indifference ou sans esprit critique (Durocher, Fortin et
C^ote, 2007; Durocher et Gendron, 2011). Les auteurs proposent une nouvelle theorisation
de l’ecart entre les deux groupes qui supposerait la renonciation aux tensions ou au bl^ ame.
En s’inspirant des travaux de David Stark (2009), ils conceptualisent la situation observee
comme un cas de « discordance » dans lequel differents modes d’evaluation  a la juste
valeur coexistent sans s’opposer dans une ferme rivalite. En d’autres termes, m^eme si les
principes de l’evaluation et de la performance different, cette divergence n’aboutit ni  a un
conflit ouvert ni a un lobbyisme politique des investisseurs et des analystes. Les auteurs
analysent les repercussions de cette discordance sur notre comprehension (ou notre
incomprehension) du merite des justes valeurs sur les marches financiers.

1. Introduction
Despite the stated mission of standard setters being to develop standards that will pro-
vide useful information to financial statement users, standards are developed with little
understanding of, or fundamental debate about, these users’ relationship with financial
reports. Rather than seeking to empirically discover users’ needs, standard setters tend to
construct the financial statement user as an individual who uses accounting data, result-
ing from the application of accounting standards, in making economic decisions (Young
2006). It is therefore no exaggeration to say that accounting is today what standard set-
ters say it is. How accounting should be done and used, and hence what practices are to
be considered valuable, is authoritatively determined by standard setters through invok-
ing the imagined demands of an imagined user. Observers of accounting standard-setting
processes have hinted at this possibly being the case with fair value accounting. For
example, Power (2010, 198, 208) says that the conditions that led to the increasing signif-
icance of fair values in accounting standards, seem to be generated “more by the visions
and dreams of accounting policy-makers” than by a demand from “real users in real
markets.”
Yet, such “real” users of financial statements and accounting standard setters might
be expected to hold a harmonious position on the subject of fair value accounting. There
is a popular assumption that fair value financial accounting standards were created with
the expectation that they would facilitate the work of investors and analysts. User repre-
sentative bodies, like the CFA Institute, have consistently supported that financial reports
are fundamental to sound investment decision making and that fair value is the desired
measurement attribute by investors and analysts (see CFA Institute 2007, 8–9). Addition-
ally, findings ensuing from a number of value relevance studies, that the use of fair values
results in more relevant and reliable information for investors’ decision-making processes
(see, e.g., Barth 2006, 2007; Barth and Landsman 2010; Hodder, Hopkins, and Schipper
2013), suggest that investors and analysts would agree with standard setters on the infor-
mational value of fair values.
These matters provide the motivation for the following research questions: How do
investors and analysts evaluate fair values in their financial analysis work? How do these
evaluations relate to those expected of investors and analysts by standard setters? To
address these questions, empirical evidence is used from interviews with investors and ana-
lysts in the United Kingdom about their perceptions of fair value introduced by the

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International Accounting Standards Board (IASB) in their financial reporting standards,

observations of meetings of the IASB with investors and analysts, and analysis of com-
ment letters from investors and analysts to the IASB. Contrary to expectations, the find-
ings reveal a situation of disharmony between users and standard setters on the usefulness
of fair values. Investors and analysts evaluate fair value accounting in terms of its poten-
tial to inform them about how the business has performed, rather than the expectation by
standard setters for them to have an interest in how the individual assets and liabilities of
the business are valued by the market.
The findings from the field study here contribute to our understanding of the use of
accounting in practice. Despite insights from the mainstream accounting and finance liter-
ature (e.g., Brown, Call, Clement, and Sharp 2015, 2016; O’Brien, McNichols, and Lin
2005), and behavioral work (e.g., Fogarty and Rogers 2005; Imam and Spence 2016), on
the inputs analysts use and the incentives they face in issuing earnings forecasts or provid-
ing stock recommendations, and insights from sociological studies (e.g., Beunza and
Garud 2007; Beunza and Stark 2012; Knorr Cetina 2011; Tan 2014) on how analysts use
calculative practices to construct evaluations of companies, our understandings of the use
of accounting in financial analysis processes remain rather limited. Studies commissioned
by professional bodies exploring the general decision-usefulness of accounting information
(Cascino et al. 2016; Hjelstr€om, Hjelstr€om, and Sj€ogren 2014), and studies surveying prac-
titioners on their preferences for accounting measurements (CFA 2009, 2013; Gassen and
Schwedler 2008, 2010; PwC 2007), have not addressed how users perceive accounting valu-
ation and how their perceptions relate to those expected of them by standard setters. This
paper therefore responds to constant calls to explore how accounting interacts with finan-
cial analysis (Durocher 2009; Hopwood 2009; Vollmer, Mennicken, and Preda 2009), espe-
cially in the case of accounting measurements (Cascino et al. 2013, 2014).
By providing evidence on how investors and analysts react toward fair value, this
paper also adds to the emerging literature on the effects of fair value accounting on practi-
tioners in capital markets. A number of researchers have supported that what is at stake
with the increasing use of fair values is the provision of data with reference to some reality
(Bougen and Young 2012; Bromwich 2007), which poses particular challenges to how
managers represent company performance (Barker and Schulte 2017). Durocher and Gen-
dron (2014) explore how practitioners’ reactions toward the use of fair values demonstrate
a lack of professional cognitive unity, and Smith-Lacroix, Durocher, and Gendron (2011)
explore how the increasing use of independent valuators erodes the expertise of auditors
and the extent to which they are in control of their work. Okamoto (2014) demonstrates
how fair valuations of complex financial instruments involve processes of distributed cog-
nition among many actors. This paper adds to this literature by exploring how investors
and analysts use fair values in their work and how they evaluate their usefulness when
valuing a business.
Overall, the paper responds to a call to study “controversial linkages (or the absence
of linkages) between users and standard-setting processes” (Durocher and Gendron 2011,
236). Studying how users’ assessments of accounting practices relate to those of standard
setters is important because it can provide us with direct insights into the value of
accounting regulation. The empirical evidence presented here therefore offers the potential
to understand the use of financial accounting information “as it is rather than as it is
assumed to be” (Hopwood 2000, 765), and provides insights into how accounting stan-
dards bear on practice rather than the more popular preoccupation with how these stan-
dards are developed (Chahed 2014; Cooper and Robson 2006; Erb and Pelger 2015;
Morley 2016; Pelger 2016; Robson and Young 2009; Young 1996, 2003). That accounting
information is a “heterogeneous agglomeration” (Andon, Baxter, and Chua 2015, 987), a
summary of complex assumptions, values, and interests with no inherent usefulness for

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decision making (March 1987; Mouritsen and Kreiner 2016) makes studying its use in
informing investment decisions and advice all the more pertinent for our understandings
of the role of accounting in organizations and society.
The empirical evidence is also used here to develop theory on the relationship between
financial statement users and standard setters. This is driven by a curiosity as to how both
groups’ disparate evaluations of fair values coexist in the standard-setting environment.
Despite users being dissatisfied with the use of fair values, they do not engage in active resis-
tance, and hence there is no outright conflict between the two groups. By looking at the
existing literature, one can interpret this situation in terms of investors and analysts having
no sufficient interest in accounting as they prioritize other sources of information in their
work and in particular meetings with company representatives (Barker 1998; Barker, Hen-
dry, Roberts, and Sanderson 2012). Other professionals arguably have more vested interest
in accounting standards than users, as preparers are interested in maintaining their judg-
ment domain (Harding and McKinnon 1997), and managers are interested in using account-
ing to form strategic informational relationships with fund managers (Roberts, Sanderson,
Barker, and Hendry 2006). One can also say that investors and analysts simply comply with
what accounting information they are provided with, even if they are not satisfied, because
they are docile and powerless (Durocher and Gendron 2011), and because they generally
lack interest in taking an active part in standard-setting processes (Durocher et al. 2007;
Georgiou 2010; ICGN 2007). Another possible interpretation can be that investors and ana-
lysts would not want to publicly criticize financial reporting because that would destabilize
the image of the calculative rationality of their work (Malsch and Gendron 2009). The
approach taken in this paper is to take a more reflective standpoint in interpreting the unre-
solved tension between users’ and standard setters’ evaluations of fair values.
To enable this, the analysis here draws on concepts from the sociology of worth, or eval-
uation, whose central tenet is how disputes can arise neither as a result of issues of power
and interest, nor because of a simple clash between contending worlds, but due to different
principles of evaluation being present (Annisette and Richardson 2011; Boltanski and
Thevenot (1991) 2006; Ramirez 2013). In a similar manner, this paper argues that the differ-
ent evaluations of fair value accounting are not primarily because of issues of power and
interest, but due to different conceptions of the value of accounting which are frictional but
not incompatible. The empirical material is presented in terms of the two main evaluative
principles of “valuation” and “performance” which relate to “assessing how an entity attains
a certain type of worth” (Lamont 2012, 205); the process through which something becomes,
or is made, “valuable” (Kornberger, Justesen, Madsen, and Mouritsen 2015; Muniesa 2011;
Stark 2011). In interpreting how the different evaluations of fair values coexist, the analysis
draws on Stark’s (2009, 27) work and characterizes the situation as one of dissonance where
“diverse, even antagonistic, performance principles overlap” and operate at once. As there
is, demonstrably, no right way of measuring assets and liabilities and no coherent theory on
how different measurements can provide decision-useful information to the end users of
accounting, the different ways of evaluating fair values continue to operate at once, even in a
state of disharmony. Taking this approach helps us turn away from conceiving financial
statement users as being indifferent, or docile, about the value of accounting standards and
reports (Durocher et al. 2007; Durocher and Gendron 2011), and standard setters as incor-
rectly understanding, or simply ignoring, users’ informational needs (Young 2006). In this
way, this paper also contributes to the sociology of finance, and valuation studies more
broadly, by studying the contested nature of accounting valuation practices (Chenhall, Hall,
and Smith 2013; Mennicken and Sj€ ogren 2015).
The rest of the paper is structured as follows: the next section explains the process of
data collection. Section 3 presents and analyzes the findings addressing the research ques-
tions of how investors and analysts evaluate the use of fair values in their work, and how

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these evaluations relate to those expected of them by standard setters. In section 4, the
findings are further analyzed and a theoretical discussion on how the different evaluations
of fair values can coexist is developed. Section 5 offers some concluding remarks.

2. Collection of evidence
The analysis here draws upon empirical material from 23 semistructured interviews with
24 investment professionals, and others, based in London in 2009/2010. The interviews
were conducted face-to-face with interviewees at their place of work, lasted on average
63 minutes each, were recorded and transcribed. The transcriptions generated 393 pages of
data (single spaced, font 12). Interviewees were asked about their evaluations of fair value
accounting as part of their experiences in analyzing published corporate financial data.
The specific purpose was to get perceptions, observations, and thoughts about the worth
and impact of fair value accounting to their decision making, especially in relation to what
would be expected of them from standard setters. Interviewees were promised anonymity
for the comments they provided and signed a consent form agreeing to be recorded.
The interviewees consisted mainly of investors and analysts. The “investors” group
consisted of six individuals working for asset management firms that have either the role
of selecting stocks to be invested in funds, called fund managers, or the role of advising
fund managers, called buy-side analysts (this distinction is quite often blurred in practice).
The “analysts” group consisted of seven sell-side analysts working for investment banks
and three independent analysts employed by firms providing advisory services. Sell-side
analysts consisted of two interviewees analyzing banks, two analyzing insurance compa-
nies, two accounting and valuation (macro) analysts and one interviewee analyzing indus-
trial goods. Five individuals from organizations collectively representing investors’ and/or
analysts’ views, two standard setters, and one credit-rating analyst were also interviewed.
Although all interviewees were based in London, they represented a range of coverage for
UK, European, and global equity and debt research and investments.
Interviewees were recruited mainly through cold e-mailing individuals identified
through websites and reports and from recommendations from one interviewee to
another.1 A total of 88 individuals were contacted. Most of those interviewed hold very
senior positions and thus work under intense pressure, having many calls upon their scarce
time. It is a measure of the topicality and importance of the subject that access to these
high-level individuals in the investment community was obtained. The job titles, career
background, and the roles performed by the interviewees varied. In addition, many inter-
viewees had experience of a variety of roles. For example, a sell-side analyst might be also
representing investors’ and analysts’ views on an advising or regulatory committee and
might have previously worked as a buy-side analyst. Individuals having a full-time repre-
sentative role usually had previous experience as buy-side or sell-side analysts. More
details about the interviewees are provided in Table 1.
Findings from interviews are supplemented by nonparticipant observation and docu-
mentary analysis. Financial statement users do not have much direct interaction with
standard setters and their use of the products of standard setting can be seen as a form
of indirect interaction. To add to the interview evidence, information was also collected
from observing five IASB-ARG (Analyst Representative Group)2 meetings held at the
IASB offices in London in 2008 and 2009. These meetings provided insights into how
investors and analysts communicate their views on active projects to standard setters,

1. I acknowledge the help of Professor Geoffrey Whittington from the University of Cambridge in obtaining
access to some of these interviewees.
2. The ARG, now called the Capital Markets Advisory Committee (CMAC), is a group of selected profes-
sional financial analysts who meet three times a year with members of the IASB to provide the views of
professional investors on financial reporting issues.

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TABLE 1

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1302

Interviews

CARVol.
Years of

Vol.35
Interviewee Date Job title experience Qualifications No of pages

0 No.
Investors
8 October 7, 2009 Director of International 21 Master, Chartered Accountant 18
Contemporary

No. 30 (Fall
Accounting and Valuation
Contemporary

(Winter
9 November 11, 2009 Head of Equity Research 23 Bachelor, CFA Charterholder 17

2018)
14 December 23, 2009 Head of European Equities 17 Master, CFA Charterholder 14
15 December 28, 2009 Senior Investment Strategist 9 Bachelor, Chartered Accountant 17

2017)
17 January 13, 2010 Vice President Global Equity 9 Master, CFA Charterholder 16
Accounting

Strategy
20 January 21, 2010 Senior Investment Manager 10 Bachelor, CFA Charterholder 18
Analysts
6 October 1, 2009 Head of Capital Goods 24 Master 19
AccountingResearch
Research

Research
11 December 2, 2009 Company Director 23 Master, Chartered Accountant 12
13 December 18, 2009 Head of European Equity 11 Master, Chartered Accountant 15
Research
16 January 7, 2010 European Head, Valuation & 18 Master, Chartered Accountant 19
Accounting Research
18 January 5, 2010 Senior Equity Research 11 Master 14
Analyst (Banks)
19 January 18, 2010 Head of European Insurance 12 Master 17
Research and Global
Insurance Research
21 February 3, 2010 Vice President Equity 13 Bachelor, Chartered Accountant, 14
Research (Banks) CFA Charterholder
22 February 23, 2010 Analyst—Insurance 8 Master, CFA Charterholder 18
23a March 2, 2010 Equity Analyst 20 Master 11
23b March 2, 2010 Equity Analyst 15 Master, CFA Charterholder
(The table is continued on the next page.)
 TABLE 1 (continued)

Years of
Interviewee Date Job title experience Qualifications No of pages

Representatives of investors and analysts

2 July 24, 2009 Director, Financial Reporting 19 Doctorate, CFA Charterholder 23
Policy
4 September 10, 2009 Chairman of Accounting 23 Bachelor 11
Advocacy Committee
5 September 24, 2009 Director of Research 16 Doctorate, Chartered Accountant 17
7 October 6, 2009 Assistant Director, Capital 25 Master, Member of a financial 18
Markets professional body
12 December 2, 2009 Director of Corporate 15 Bachelor, Chartered Accountant 17
Governance and Reporting
The

Standard setters
3 September 3, 2009 Board Member 12 Master, Chartered Accountant 20
10 November 12, 2009 Project Manager 10 Master, CFA Charterholder 28
TheWorth

Credit-rating analyst
1 March 23, 2009 Head of Accounting Research 22 Bachelor, Chartered Accountant 20
Total 393
WorthofofFair
Fair

Notes: To protect the anonymity of the interviewees, I do not link the quotations from transcripts with the corresponding individuals in this table.

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Interviewees 23a and 23b were interviewed together.

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thus offering a rare opportunity to observe direct interaction between the two groups.
Twenty-nine hours of meetings were observed during which notes were taken of opin-
ions exchanged, especially in relation to discussions on fair value measurement. This
provided 41 pages of handwritten notes. Information was also obtained from investors’
and analysts’ comment letters to IASB discussion papers and exposure drafts. These
were obtained from the International Financial Reporting Standards (IFRS) Foundation
website in relation to “why use fair value accounting” (one comment letter on the mea-
surement objectives project) and “how to measure fair values” (six comment letters on
the fair value measurement project) projects which provided 33 pages of material.
Responses to academic papers by investors and analysts at the ICAEW’s Information
for Better Markets yearly academic conference, and articles in the financial press were
also consulted. Details about the observations and documents analyzed are provided in
Table 2. Information from observations and documents was used to both identify
themes to be explored in interviews and to confirm and enrich understandings of inter-
view findings.
It is recognized here that the respondents to the study may have been more critical in
their evaluations of fair value accounting because of the public debate at the time on the
potential role of fair value accounting in the financial crisis. However, the arguments
developed here are not bounded to a specific time and space. The public debate on fair
values at the time may in fact be advantageous for the analysis here as it is in destabilizing
moments that issues are opened up to reflective cognition (Stark 2009). It needs to be
emphasized that it was made very clear at the start of each interview that no particular
position was held by the researcher on the subject and that the aim was to better under-
stand how fair value accounting is used in financial analysis practices. In the interviews
there was, by intention, not much focus placed on the issues that related to the illiquidity
in markets and volatility caused by irrationality during the crisis. It is also felt that views
by investors and analysts would not greatly differ today, as fair values continue to consti-
tute an important feature of accounting valuation practice.
The information was collected by taking a grounded interpretive approach on how
investors and analysts work with accounting data and how they evaluate fair value mea-
surements. The visits to the field were made with the researcher having an “open mind.”
What quickly emerged, to the surprise of the researcher, was the level of divergence
between users’ and standard setters’ views on the worth of fair values. The information
was analyzed using an “intuitive approach” (O’Dwyer 2004) based on the research goals,
research questions, and methodological approach (Golden-Biddle and Locke 2007). Analy-
sis involved working iteratively between the interview transcripts and notes, notes from
observations, and comment letters to develop appropriate themes that allowed the catego-
rization of findings. To identify and code themes, or patterns, a “qualitative content analy-
sis” approach (Patton 2002) was employed. Similar to what Durocher and Gendron
(2011) found, the views expressed by interviewees did not relate to homogenous concerns
that could be neatly categorized into themes, but rather embraced similar patterns when
reflecting on the worth of fair values. The empirical findings and discussion section that
follows is organized around these patterns. Illustrative quotations from transcripts were
selected and used verbatim to illustrate themes and to reflect a range of opinions enabling
readers to “hear” the interviewees’ voices. In fact, the extensive use of quotes provides a
rich narrative of how accounting is experienced in financial analysis practices aiming to
contribute to our limited knowledge in this area.
During the analysis of information it became apparent that the situation observed was
more subtle than one characterized by compliance or resistance to fair values mainly
because of issues of interest or power (see, e.g., Maroun and van Zijl 2016; Tremblay and
Gendron 2011). The conceptual frame of dissonance used here is a useful analytical tool

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Observations and comment letters

Observations—IASB/CMAC meetings

Meeting Date Hours of observation Number of handwritten note pages

1 February 13, 2008 6.5 12

2 June 25, 2008 6 8
3 November 12, 2008 5.5 6
4 February 25, 2009 6 5
5 June 24, 2009 5 10
Total 29 41

Comment letters by investors, analysts, and their representatives to the IASB

Comment letters
by investors,
The

Deadline for submission Total number of analysts, and their Number

Purpose Project Due process document of comment letters comment letters representatives of pages
TheWorth

Why fair Measurement Discussion Paper: May 2006 86 1 7

value? Objectives Measurement Bases for
Financial Accounting:
WorthofofFair

Measurement on Initial
Fair

Recognition

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How to fair Fair Value Discussion Paper: Fair Value April 2007 136 4 15
Value

Vol.Vol.
value? Measurement Measurement
Fair Value Exposure Draft: Fair Value September 2009 160 2 11

0 No.
Measurement Measurement

35 No.
Total 7 33
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enabling an analysis on the nature of the divergence in evaluations of fair value account-
ing, and hence the problematization (Alvesson and Sandberg 2011) of its worth in finan-
cial markets. Rather than as an explanatory device, the frame of dissonance is used here
as a sensitizing, or as a heuristic, device (Ahrens and Chapman 2006; Langley 1999)
through which theoretical implications are drawn for the relationship between users and
standard setters and the worth of fair values in capital markets. In this way, the paper
uses an approach which develops theory from the empirical findings taken by some
accounting scholars recently (e.g., Griffith, Hammersley, and Kadous 2015; Guenin-Para-
cini, Malsch, and Marche Paille 2014; Guenin-Paracini, Malsch, and Tremblay 2015). The
following section presents and discusses the empirical findings. Specifically, it examines
how investors and analysts evaluate the use of fair value accounting and how these evalua-
tions relate to those expected of them by standard setters.

3. Empirical findings and discussion

How standard setters expect investors and analysts to evaluate fair values can be inferred
from a close reading of the standard-setting literature (e.g., the bases of conclusions of
standards where fair value is prominently required such as IASB 2004, 2011, 2014; IASB
and AcSB 2005) and of the literature authored by individuals involved in standard-setting
activities (e.g., Barth 2007, 2014; Hague 2007; Linsmeier 2011; McGregor 2007; Whitting-
ton 2008, 2015). The use of fair values has been explicitly justified in a rhetorical discourse
about users’ needs. For example, in developing accounting for business combinations “the
IASB concluded that separate recognition of intangible assets, on the basis of an estimate
of fair value, rather than subsuming them in goodwill, provides better information to
the users of financial statements even if a significant degree of judgment is required to esti-
mate fair value” (IASB 2004, BC174). As McConnell (2010, 211) maintained, fair value
information is considered to be useful to investors because “investing is all about fair
value,” “fair value impounds the most current and complete assessment about the value of
an item,” and it is “common practice . . . for investors to use all the information at their
disposal to adjust balance sheets to current value.” Investors and analysts would therefore
be expected to find fair values as useful inputs to their valuation models. They would be
expected to consider the fair values of individual assets and liabilities to represent expected
future cash flows, and movements in those fair values to represent the performance of a
business. They would therefore be expected to privilege asset and liability values over
earnings when assessing performance. Fair values are also expected to be seen as trustwor-
thy for stock valuation as they are determined by the market rather than by the company
managers. By providing a faithful representation of economic reality, fair values are
expected to be seen as facilitating a better assessment of manager stewardship and as con-
tributing to more transparent financial reporting. This constitutes a mode of evaluation of
fair values that is labeled “valuation” in the analysis here.3 The key points of this mode of
evaluation are summarized in the right column of Table 3.
The empirical undertaking here has been to explore the evaluative principles investors
and analysts hold in relation to fair values. Despite them and standard setters expected to
hold a harmonious position on the subject of fair value accounting, in the analysis below
it is evident that they appear to have different ways of thinking, or modes of evaluation,
about fair values. As is shown below, in their dominant mode of evaluation, which is
labeled “performance,” investors and analysts emphasize the importance of using earnings

3. It needs to be noted that the analysis here does not assume that all standard setters are active advocates of
fair values. In fact, fair values have been promoted by a group of standard setters (see an excellent analysis
by Morley 2016 on this issue in the case of accounting for liabilities). Also, no assumption is made that all
standards require the use of fair values. Fair value remains prominent in accounting standards but is not
advocated as strongly as it was in the period prior to the 2008 crisis (Whittington 2015).

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TABLE 3
Evaluation of fair values
Evaluations of fair values discovered in the
interviews—emphasis is on assessing the
performance of a business
We add value to fair value accounting numbers
Fair values are a “nice-to-have thing” without them
directly informing investment analysis
Investors and analysts “add value” to fair values—
own valuations are more important
Fair values are used as part of a wider information
data set—accounting is not an important driver of
share price movements
We take a pragmatic view of the value of fair value accounting
Pragmatic view of fair values opposed to a
conceptual view—standard-setting debate seen as
involving abstract theoretical debates
Changes in accounting standards interfere with
analyses of performance over time
Informational needs of users are misrepresented by
the CFA Institute’s enthusiasm with fair values
Not interested in lobbying on fair value standards
but in just getting useful information
Fair values make us wonder what the value of accounting is
Financial reports have no clear function in capital
markets
It is not clear who should have jurisdiction to value
companies
There is no right answer to accounting problems
”one size fits all” approach to financial reporting
is unattainable
We disagree with some of the justificatory principles of fair value accounting
Fair values can only inform judgments about future Fair values represent expected future cash
cash flows
Fair values are not the “answer” to estimating a
company’s future value
Fair values are more prone to manipulation by
management
Fair values engender hyperreality concerns
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Evaluations of fair values as expected
by standard setters inferred from the
standard-setting literature—emphasis is on
the valuation of individual assets and
liabilities
Fair values have a clear function of
informing investment analysis
Fair values of individual assets and liabilities
are valuable for financial analysis
Fair values are a key source of information
for financial analysis—accounting
information can affect share prices
Conceptual view of fair values complements
pragmatic view
Changes in accounting standards improve the
quality of information
Informational needs of users are adequately
represented by the CFA Institute’s
enthusiasm with fair values
Users have vested interests in relation to fair
value accounting standards that need to be
balanced with those of other stakeholders
Financial reports are useful information
commodities in capital markets
Accounting preparers can inform the
valuation of companies through the
provision of fair values
Universal principles are workable for
regulating financial reporting
flows
Fair values can facilitate estimating a
company’s future value
Fair values are more objective than other
measurements
Fair values faithfully represent aspects of
economic reality
(The table is continued on the next page.)
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TABLE 3 (continued)

Evaluations of fair values as expected

by standard setters inferred from the
Evaluations of fair values discovered in the standard-setting literature—emphasis is on
interviews—emphasis is on assessing the the valuation of individual assets and
performance of a business liabilities

Fair value accounting does not resonate with the ways we analyze accounts
Split operating and financing activities—the focus is The focus is on the values of assets and
on earnings liabilities
Value creation is represented mainly through Value creation is represented mainly through
transactional returns changes in the values of underlying assets
Fair values interfere with the assessment of Fair values facilitate the assessment of
stewardship of company managers stewardship of company managers
Fair value volatility in earnings is unhelpful for It is easy to “see through” volatility caused
assessing performance by fair values
Fair values can make users’ work more difficult— Fair values can save users’ time and effort in
need to un-fair value reported earnings financial analysis processes

figures to assess how a business is performing.4 This performance is judged in terms of

how a business creates and maintains value based mostly on transactional returns and
capital employed valued at cost rather than the fair values of assets and their returns. The
findings in terms of the performance mode of evaluation are summarized in the left col-
umn of Table 3. The following subsections illustrate how investors and analysts add value
to fair value accounting numbers, how they take a pragmatic view of the value of fair
value accounting, how fair values make them wonder what the value of accounting is,
how they disagree with some of the justificatory principles of fair values, and how fair
value accounting does not resonate with the ways they analyze accounts. Throughout the
analysis, consideration is made of how these evaluations of fair value accounting relate to
those expected of them by standard setters.

We add value to fair value accounting numbers

A common theme from the interview transcripts is how fair value accounting information
is considered important, but not fundamental, to financial analysis. An interviewee
explained how the value of the annual report is in providing additional detail and confir-
mation to more timely pieces of information such as preliminary results presentations by
company managers. Indeed:

We use a standardized model for everything below the level of operating profit . . .. We
couldn’t complete our standardized models without reference to the annual report. The
preliminary results releases and the other communication that you get isn’t detailed
enough to be able to disaggregate and rearrange the information in the way that we
need. So we extensively use the financial data in the annual report. (investor)

4. The distinction made here between the “valuation” and “performance” principles is not to be confused with
the usual distinction made in the literature between the valuation and performance, or stewardship, or
accountability, roles of accounting (Cascino et al. 2016; Kothari, Ramanna, and Skinner 2010; Pelger 2016;
Williams and Ravenscroft 2015). The performance mode of evaluation as developed in this paper relates to
the overall performance of the business, and includes both past and future performance. Evaluating the per-
formance, or stewardship, of managers is therefore part of the overall evaluation of business performance.

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However, the same interviewee went on to say:

I am not sure how much we use it [the annual report]. But the first time round when an
analyst is given a company the first thing they’ll do is they’ll get the last two or three
years of annual reports and they’ll start to; then they’ll build the model. (investor)

Therefore, fair value accounting information has some value when analyzing invest-
ment opportunities but this value is not as “sophisticated” in practice as would be
expected by standard setters. Accounting numbers are extensively used to build a valua-
tion model when first analyzing a company. Fair values are considered informative in a
broader sense in that they can provide some insights into the future profitability of a busi-
ness. When asked about examples where fair values are considered informative, intervie-
wees usually referred to how the fair valuing of pension liabilities has been “an
improvement,” as an analyst put it, in that it has made visible the pension liabilities com-
panies are facing. The use of fair values is also seen as useful for the valuation of certain
financial instruments for which market values are observable. Investors and analysts, how-
ever, said that changes in fair values in these areas are not useful to be reported in the
income statement as this distorts the reporting of the performance of the business.
The use of fair values is not seen as useful for valuing debt or for revaluing operating
assets such as property, plant, and equipment (PPE). An example where standard setters
have “gone too far,” in an interviewee’s (an investor’s) words, with advocating the use of
fair values resulting in information not seen as useful for financial analysis, is the use of
fair values in business combinations. A problem often mentioned by interviewees is that
by assigning a fair value to each individual tangible and intangible asset and liability
acquired in a business combination, it is harder for financial statement users to assess
whether the acquiring business has overpaid in total for the acquired business. The process
of impairment testing of goodwill also makes it more difficult for users to assess such
overpayment after the acquisition. Investors and analysts explained how they are inter-
ested in assessing how management has performed on the acquisition rather than how the
fair value of individual assets changes over time.
Interestingly, some “front-stage” statements by the interviewees usually early into the
interviews revealed evaluating fair values in their own right, that is, without them neces-
sarily having a value in informing financial analysis. For example, an interviewee analyz-
ing insurance companies explained that “IFRS is fairly useless for life insurers,” and how
s/he does not use the IFRS accounts at all in her/his work, but remarked that “fair value
is a nice-to-have thing and it also gives you the sense of market movements because an
embedded value doesn’t tell you what the market movements are.” Reflections like this
suggest that the value of fair value accounting to investors and analysts is that it is “just
there.” The value of accounting more generally to investors and analysts perhaps lies in it
being seen as providing some form of discipline over the conduct of company managers.
Financial reports are seen as a means through which managers have to report on their
performance and then to have that reporting audited, without this necessarily having the
function of directly informing investment decisions and advice.
Investors and analysts are not necessarily endorsing the use of fair values but rather
not broadly disagreeing with their use. For example, fair values are seen as improving, or
at least as not damaging, the information environment as long as appropriate disclosures
are provided. As an interviewee explained:

I think it’s all about disclosure. Even if you keep the old standard [IAS 39], fine, but just
give me more information as to what the fair value of this stuff is in a note or some-
thing. Or if you wanna have fair value, have it, but either way it’s fine with me because

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either way I will always want to have . . .. I will always want to arrive at my own view
of the capital situation, of the balance sheet situation and the various other companies.
Just give me the tools to get there. (analyst)

This interviewee went on to explain how “more” information is better than “less,”
emphasizing that adjustments are always made to reported figures. Interviewees actually
gave a strong sense of how their own judgments are considered more important than any
source of information. The value of the investment profession lies more in the expertise of
developing analytical and valuation techniques and, by processing information provided
by companies, investment professionals see themselves as “adding value” to that informa-
tion (Barker 1998, 9). Hence, information, such as financial accounting data, incorporated
into such valuation models becomes of secondary importance, which provides a challenge
to the general worth of accounting.
Rather than disagreeing with idealized views of how accounting should be done, inves-
tors and analysts are more concerned with getting numbers that can be consumed together
with other information in proprietary analyses. When asked about the usefulness of fair
values in their work, interviewees referred to the limitations of accounting data in assisting
them with forecasting share prices. For example, two interviewees said:

Accounting may impact a relatively small number of factors that are gonna influence a
share price. There are probably a hundred thousand things that can influence any one
share and accounting is a very small aspect of that. (investor)

You pay attention to it [financial reporting], but it is one input amongst many. You’ve
got to look at macroeconomic variables, you’ve got to look at industry variables, you’ve
got to look at strategy, you’ve got to look at personalities, in your judgment of manage-
ment. A lot of it [financial analysis] is chemistry, a lot of it is reliability, integrity, corpo-
rate governance and you could make investment decisions on that basis, when you are
evaluating the fundamentals as well you’re speaking about an imperfect information set
. . .. It’s a very eclectic multidimensional process. (representative of investors and ana-
lysts)

Investors and analysts want to be seen as the ones in control of evaluating what influ-
ences share price—the “one hundred thousand things.” An example of how proprietary
analysis is valued more than any information publicly disclosed by companies arose in an
IASB-ARG meeting (held on February 13, 2008). When asked by standard setters about
marking-to-model fair values, a few analysts expressed the view that how items are valued
is not so important for their work. They explained that they never try to recalculate the
accounting numbers as they are unable to replicate the valuation that the company has
produced. Instead, they take the fair value numbers and adjust them in their models pro-
ducing their own notions of value. As investors and analysts expect financial reports to
give them the information to arrive at their own conclusions, concise valuation of items is
not seen as important. Indeed:

What the standard setters should be doing is ensuring that we have the information we
need to do our own valuations. (representative of investors and analysts, interviewee’s
emphasis)

Fair value data are therefore used as “building blocks” in financial analysis processes.
It is useful in driving background information but is not the driver of investment decisions.

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Fair value accounting information may be a nice thing to have, but is not seen as having a
value in and of itself. Instead, fair value accounting information acquires value when trian-
gulated with other pieces of information and consumed in financial analysis models. Stan-
dard setters would expect investors and analysts to consider concise valuation in
accounting as key to their work, yet what we discover here is that this is hardly the case, as
the absolute numbers are less interesting in themselves. What is considered more interest-
ing, or more worthy, is what these numbers say about the performance of the business.
This focus on how the business has performed over time is what guides a pragmatic stance
to the use of fair values in financial reports as explored in the subsection that follows.

We take a pragmatic view of the value of fair value accounting

One would expect standard setters’ conception of value relevance to translate to the users
as pragmatic. Yet, comments from standard setters reveal that their interactions with users
during standard-setting processes demonstrate the different ways of evaluating the rele-
vance of accounting to decision-making needs. A standard setter remarked that when the
two groups interact, in IASB-ARG meetings, they are talking “past each other” because
users are seen to be taking a more pragmatic stance to the usefulness of accounting:

I find that we end up talking past each other because when you get a bunch of accoun-
tants and you know, especially we’ve got our board members and they’re very strongly
opinionated and then you get a bunch of analysts that don’t think in terms of account-
ing but they use the financial statements to do their analyses and build their models and
stuff. (standard setter)

Interestingly, users of accounts are not considered to be “thinking” in terms of

accounting, implying that standard setting and financial analysis can represent two differ-
ent frames of thinking about accounting. Another standard setter expressed the view that
comments from investors and analysts to the IASB are usually without a conceptual basis:

People often offer pragmatic solutions and the Board is uncomfortable with pragmatic
solutions because we like and try to make things principles-based, conceptually sound,
consistent with the underlying conceptual framework because otherwise accounting just
becomes a series of random rules. (standard setter)

In an IASB-ARG meeting (held on February 25, 2009) a standard setter remarked

that maybe anything that is not fair value is a rule and went on to argue that a principles-
based approach to valuation is not represented by management’s intentions but by how
the market values financial statement items. The response by analysts was that they are
not so much concerned with whether valuation reflects management’s intentions but with
whether valuations are based on actual transactions.
One of the evaluations by financial statement users is that standard-setting debates are
too “theoretical” and often disconnected from the “real world” of financial analysis. As
an analyst commented in an interview, the overarching principle standard setters apply is
that the balance sheet reflects fair values rather than a principle that “the numbers should
be committed to delivering what the users need.” Another interviewee (a credit-rating ana-
lyst) commented on how financial statement users need simplicity rather than “something
which is all about complex valuations that move around a lot.” Investors and analysts feel
that the issues in discussion papers and exposure drafts published by the IASB are some-
times too abstract and that they lack the necessary expertise to comment on them. This
perspective was developed as follows by two interviewees:

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Most of the people who are writing analysts, whether they are buy-side or sell-side,
would not understand most of the conversation that goes on there. And I think that’s
the dynamic they [standard setters] are missing because they don’t realize how stupid we
are . . . or how little this matters to us . . . the debate is extraordinary at times and goes
on at length about what are highly theoretical issues that no one is gonna care a damn
about in the real world . . .. But someone needs to kind of hold their feet to the ground
and remember that we are stupid, you know. They just need reminding that the average
analyst isn’t, you know, thinking about all these numbers and what’s going through
OCI [Other Comprehensive Income] and the split of that. They are much more basic
than that really. (investor)

It [accounting] doesn’t need to be the ideal dream of some accountants sitting in some
office block. It needs to be usable and if it doesn’t pass the use test it is useless, it is very
simple. That’s what people miss in accounting. Users of accounts should be able to navi-
gate the accounts and understand how to value the company. They can’t. It might be
perfect in terms of theory but it’s fairly useless in terms of practice. (analyst)

It became obvious in the conversations with investors and analysts that changes in
accounting standards may actually perpetuate disconnect between their needs and account-
ing information. In discussing accounting for financial instruments in an IASB-ARG meet-
ing (held on February 13, 2008) analysts opined that any solution is bound to prove
contentious in practice and advised the IASB to consider whether fair value would provide
better information for the capital markets. An issue often raised in the interviews is how
changes in standards are sometimes thought to be the outcome of following a conceptual
approach, rather than responding to user needs. As the quotes below demonstrate, this
usually results in information not so helpful for the work of financial statement users who
want to compare company results over time:

Just tweaking with things because they [standard setters] think conceptually they’re not
quite right is not helpful. As analysts, we’re looking at trends over a very long time period
and the one thing that causes real problems when we’re looking at a trend, is a change in
the accounting. So for example, the move to IFRS, that’s a big shift in all the numbers in
the balance sheets and the income statement . . .. If they keep changing things all the time,
it makes our job a lot harder, so I would prefer that before they actually change every-
thing, they actually sit back and say “how beneficial is this? Is it really worth making the
change, or is this just us being puritanical about the accounting?” (analyst)

If you keep changing it [the insurance accounting standard] every three or four years
that’s actually worse than having a standard which is okay and that’s there for a long
time. You can see how the company behaves across different economic cycles and the
errors in the standard get smoothed out, if you know what I mean, because the same
standard is behaving differently in different economic cycles so you know what’s mov-
ing. Whereas if you go through past history and you have four or five different account-
ing standards I mean you don’t know if the performance of a company is due to the
accounting standard or is it because of the performance of the company, which reduces
your reliance on accounting . . .. If you have a change in accounting standard you can’t
go back . . .. So how is an investor, how can you take out the accounting distortions?
It’s impossible to do. . .I think the more and more accounting gets tinkered around with,

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it is moving more and more away from the underlying economics of the business and it
adds a lot more noise than gives you a signal, which is a big issue. (analyst)

As mentioned above, the two groups interact more through the product of account-
ing standards, annual reports of companies, rather than the process of setting the stan-
dards. Yet, some interviewees expressed concerns about the views of investors and
analysts being represented by the CFA Institute. This issue emerged in discussions about
the supporters of fair values, as the CFA Institute is seen to have a strong bias in favor
of fair value accounting. The Institute’s main justification in support of fair values is that
all financial decisions are based on the current market values of a company’s assets and
liabilities (see, e.g., CFA (Chartered Financial Analysts) Institute (Centre for Financial
Market Integrity) 2007, 2013; Papa 2008). Investors and analysts feel misrepresented by
the CFA Institute because, as some explained, having the CFA Institute qualification
does not make them part of a lobby group that aims to influence accounting standards.
An interviewee was almost polemical about the ways CFA Institute members are sur-
veyed about fair values and how the results from these surveys are interpreted and
presented:

It’s [the CFA Institute] almost like a sort of fundamentalist movement of people who
think that fair value is the answer to everything . . .. And these people [CFA Institute rep-
resentatives] just like fundamentalists will misquote evidence for their purposes that is not
susceptible to rational argument . . .. A lot of the questionnaires that get sent out by peo-
ple who support fair value are worded in such a way as to give that sort of answers . . ..
People who support fair value skew the results in their favor and they dig it behind the
details and actually the answers from investors are quite different to what the proponents
of fair value claim . . .. There is no investor out there who thinks that fair value should be
applied everywhere to everything at all times . . .. I do not understand the motivation of
the people at the top of the CFA who want to have full fair value because it’s not sup-
ported by the members, I don’t think it’s supported by any intelligent thought process
and they are just trying to be slightly mad to be honest . . .. The stuff they come out with
there is no relation to the reality of life on the ground. (analyst)

Another interviewee remarked:

CFA has got exactly the same problem [as the standard setters]. CFA say they speak for
thousands and thousands of people but the message from the CFA comes from six peo-
ple in wherever they are based, Charlottesville, and it’s six people with an interest in
accounting and it’s utter garbage that they speak for thousands and thousands of users
around the world. (investor)

These views reveal how users, and their information needs, are not only “made up”
by standard setters (Young 2006) but also by their most important association. Yet,
despite such heated expressions of discontent by investors and analysts, there is no open
organized resistance that would threaten the underlying structures and processes of stan-
dard setting.
Investors and analysts see themselves as taking a more pragmatic stance to fair value
accounting compared to other stakeholders. Three interviewees made the following com-
ments on this point:

Our vested interest is in having information that is usable. So we have a vested interest
but it’s not based around personal enrichment, it’s not based around some sort of

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evangelical desire to see some type of accounting standards win over other accounting
standards. We just want stuff we can use. (analyst)

I think there’s always a greater incentive for the preparer because of the cost, there’s a
dollar cost at the end of the day either through just getting the numbers together, or in
terms of how you feel your accounts are perceived, and the impact it will have on the
share price. For a user, it’s just a case of “do I understand the numbers, can I work
around it, does it make my life simpler, a bit easier?” For a preparer, there’s ultimately
a cost to any change. (investor)

Our voice won’t dominate the outcome and nor should it. Preparers absolutely need a
voice because they are much closer to the underlying data on how to report on all the
complexities of reporting. (investor)

This view that the user voice “should not” dominate the production of accounting
standards reveals the lack of vested interest on the part of investors and analysts in stan-
dard setting. This kind of quietness and tolerance of accounting standards is highly consis-
tent with the dissonance argument in that there is no tendency to lobby for (more)
pragmatic accounting.
Investors and analysts are therefore interested in accounting measurement information
that is not the “ideal dream” of standard setters but instead information that relates to the
“reality of life on the ground.” The difference in ways of thinking here echoes the distinction
that has been made between measurement “idealists” and measurement “pragmatists”(Power
2005, 2010; Walton 2004; Whittington 2008) where “pragmatists” are not so much obsessed
with the purity of accounting values. The “on the ground” use of accounting relates to infor-
mation that would help financial statement users assess how a business is performing. Prag-
matic ways of how this can be achieved appear to be in discord with a pursuit for a
conceptually right principle for accounting measurement. This is analyzed further next.

Fair values make us wonder what the value of accounting is

An important finding from the interviews and observations is how the use of fair values
causes investors and analysts to question whether they share the same understandings with
standard setters about the role of accounting in capital markets. As two interviewees
remarked:

The goal of some of these people [standard setters] seems to be that the value of the
business is the increase in fair value of the balance sheet during the course of the year.
And that is a complete misunderstanding of how capital markets work. Capital markets
value flows. Assets are important because it’s a measure of how effective management is
at delivering profitability from those assets. (analyst)

Is the whole purpose of accounts to show the difference between two balance sheets pur-
porting to value the company in some way? Or, is the purpose actually to produce three
balance statements of income flows, cash flows, and balance sheet numbers which those
last may, or may not, reflect value with the individual line level but taken as a whole
give you a reasonably consistent picture of the company from which you can derive
judgments about value? (analyst, interviewee’s emphasis)

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How accounting is used in capital markets is therefore seen to be “misunderstood” by

standard setters. Investors and analysts “value flows” to assess the performance of a busi-
ness. It appears that they want financial reports to provide them with a “best estimate,” in
the words of an interviewee (an analyst), of how the business has performed over the
reporting period. They then see it as their job to value the business. Questioning the role
of accounting in capital markets is therefore related to the issue of who should have the
jurisdiction to value companies.5 Interviewees provided passionate remarks on this issue:

Accounting should tell you the underlying economic performance of a company. It

should not give you the value of the company, that’s our job. The company should
never tell you what the value of the company is. They’ll give you the highest number
possible. We just want to know what the balance sheet has done. We want to know
what the P&L [Profit and Loss] has done. We want to know what the revenue line has
done. We want to know what the cost line has done. We want to know the performance
for the company and then we can judge value . . .. So the more accounting moves away
from the underlying economics the more it’s wrong. (analyst, emphasis added)

It goes back to the basic what is the role of the capital market you know and what is
the role of accounting? Is accounting there in taking a balance sheet approach to try
and come up with. . .actually you value the business and are accountants in the best
position to do that? To provide business valuations for whole entities or should that be
the role of the market? And I think that’s the role of the market and the accounts are
there to help inform that and it’s what’s the best way of those accounts informing users.
(investor)

I guess if you take it as logical extremist and you had internally generated intangibles
on there as well. . .wouldn’t that instance be the theoretical total value of the business?
And we would say that’s not the job of accounting, you know, it’s a reporting and stew-
ardship function rather than a valuation function. (investor)

As these quotes demonstrate, the use of fair values destabilizes understandings of the
value of accounting for financial analysis. Note how fair value is considered to be a depar-
ture from the underlying economics of the business. Once again, investors and analysts
want to be in control of valuation. The implication of this evaluation of fair values is that
standard setters should be focused on how financial reports can inform users to perform
their own valuations, rather than how individual items should be measured. Investors and
analysts maintained that there is no right answer to the question of how reported items
should be measured. Having one universal measurement principle and disseminating that
to all accounting practices is not seen as workable:

We [users of financial statements] have a reasonable balance in our view which is that
you’re never going to get it right, the world will constantly move on with innovation
in business. You try and get most of it about right. And therefore we are not waiting

5. One could interpret these views as the outcome of self-interested considerations. Yet, what is observed here
is not along the lines of professional turfs or securing jurisdictional work. Investors and analysts are
expressing the view that they want to be seen as the interpreters of accounting information but there was
no sense during the interviews that they felt threatened by fair value accounting.

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for, if you like, the universal theory of accounting, where everything is consistent.
(analyst)

And the trouble is accounting will never be “one size fits all.” And I think most people
who are the fundamentalists, or the evangelists, they’ve got this view that their theory is
the best for everybody, all companies, all situations at all times. And life isn’t like that.
Different policies should apply at different times and fair value, is it a useful concept?
Absolutely. Is it appropriate for everything? If you are honest with yourself and you
stop and you think about it, it should be obvious that fair value is nonsense for some
situations . . .. You should never be applying. . .there will never be one overwhelming pol-
icy that will work for everybody. (analyst)

A particularly interesting reflection on this matter was provided by an insurance

analyst:

They [standard setters] are inclined to achieve this perfect standard. It is possible they
come up with something which is fairly ordinary. So, theoretically it could be the best
thing since sliced bread. So that’s the issue. It’s trying to get everything right . . .. I’m
not saying there is a solution which I know and they haven’t got it. So it is unfair to
say they haven’t got it. It’s just that it is a very difficult industry [the insurance indus-
try] to value, and to account for, and the main argument is that in IFRS you have
no value for future streams of income . . .. Have they got it? I don’t know whether,
you know, they need to get it. What it needs to be is it needs to be consistent and it
needs to not change and people will figure out what’s going on and what works well.
(analyst)

Interestingly, the standard setters do not need to “get it” not because they are not
capable of working out the ideal methodology for measuring insurance liabilities but
because this ideal methodology is seen as unattainable. This illustrates how financial
reporting is seen to be lacking the substance of a practice where solutions to problems can
be easily worked out. The ideas developed in this subsection relate to how investors and
analysts evaluate the notions that market values can serve as indicators of expected future
value and that they are more objective than valuations provided by company managers.
This is the theme of the next subsection.

We disagree with some of the justificatory principles of fair values

A common theme in the interviews is how the use of fair values in financial reports is jus-
tified on a belief that markets are characterized by complete and perfect information. As
an interviewee (an analyst) argued, those who support the use of fair value accounting
“have a view of the world that is oversimplified and a faith in markets which is unjusti-
fied.” Interviewees commented that they evaluate current market values not as represent-
ing expected future cash flows, but rather as informing judgments about the underlying
predictions of future cash flows:

That is the thing about our investment committee, they will say that they are very inter-
ested in fair value, very interested thank you very much, but it doesn’t mean that they
believe that the fair value is true in some way and that it should be, as it were, the ulti-
mate arbiter of value because if you think about it, for a fund manager who is buying
and selling shares, their whole raison d’^etre is that they’re buying things more cheaply
than they think they are worth, and selling them more expensively. So they inherently

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don’t believe that the market value is the emanation of truth but they think the market
price is bloody important because I mean that’s the thing that matters. It’s what you do
with that fair value, and if you just assume, as it were, that that is the answer, you
haven’t asked the right question. (representative of investors and analysts, interviewee’s
emphasis)

The first sentence of the quote reflects the earlier comment that although fair val-
ues are considered to be broadly valuable for financial analysis, uncertainty about their
informational benefits emerges with further probing and thinking. It is, seemingly,
“nice” to be informed about market values, but this interviewee stresses that they are
not the “answer” when evaluating a company. Once again, the “answer” appears to lie
in the proprietary analysis on these values, triangulated with numerous other pieces of
information. Despite investors and analysts not expected by standard setters to view
accounts as providing the overall value of a company (see, e.g., IASB and FASB
2010), they are expected to recognize some value in fair values serving their informa-
tional needs. Investors and analysts also usually criticize their colleagues for not ques-
tioning reported numbers. As Jane Fuller (chair of the financial reporting and analysis
committee of CFA UK at the time) commented in a Financial Times article on Octo-
ber 29, 2009 investors should “use their brains to question market values and treat
accounting numbers as evidence, not answers.”
Reference to the “answer” is also made in the comment below provided by a buy-side
analyst, Jed Wrigley (2008, 257), discussing the value relevance of information on intangi-
bles in response to an academic paper presented at the ICAEW’s annual Information for
Better Markets conference:

I am very sorry to have to tell anyone that is a great supporter of full fair value of all
items on the balance sheet, that I have never heard a financial analyst at two o’clock in
the morning, working on their spreadsheet, trying to conclude whether to buy or sell
shares of the company, saying: “God, if only the accountants had given me the answer,
I could have gone home six hours ago.”

The comment points, once again, to dissonance between investors’ and analysts’ needs
and published financial information and, indirectly, accounting standards that regulate the
form and content of that information. Financial reports cannot provide the desired “an-
swer,” despite this apparently being the intent of supporters of fair values. The comment
reveals how investors and analysts view themselves as having a professional obligation to
perform their own valuations and to make the necessary adjustments to reported figures.
Reference to the metaphor of the “answer” reminds us of the discussion by Burchell,
Clubb, Hopwood, Hughes, and Nahapiet (1980) on the differing, yet not incompatible,
functions of accounting as an “answering machine” and as a “learning machine.” The for-
mer presumes forms of economic and calculative rationality grounded in objectivity that
can serve decision-making needs providing solutions to problems, while the latter pre-
sumes the need to apply judgment to interpret accounting figures in a setting where
accounting provides support to decision making. As discovered here, fair values are evalu-
ated as a “learning machine” by investors and analysts and this evaluation is usually con-
trasted to fair values envisioned as an “answering machine” by standard setters.
Interviewees further express discord with standard setters’ expectation that they would
see reported numbers based on fair value as less prone to management manipulation. The
rationale of the objectivity of nonentity specific values is challenged, as the following
quote indicates:

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Once they [managers] are able to influence the numbers in the financial statements, their
intentions all of a sudden become a bit more extreme. If they know it’s going to drive
an earnings number, or a particular leverage measure, then it will be massaged in a way
that maybe it wouldn’t be if you were just sitting talking to them, or looking at it in the
commentary in the financial statements. So, I certainly don’t think that having fair value
numbers in there specifically gives you more information as an analyst. (analyst)

Similarly, the use of fair values produces hyperreality concerns, as discussed elsewhere
(Barker and Schulte 2017; Bougen and Young 2012; Durocher and Gendron 2014; Macin-
tosh 2009). What is discovered in the interviews is that financial statement users feel that
accounts provide them with the construction of aspects of economic reality, rather than
with a faithful representation of those aspects:

Some of the FASB [Financial Accounting Standards Board] staff and particularly some
of the IASB staff have a very strong view on full fair value and I believe what’s behind
that is the idea that full fair value is the more objective way and not subject to manage-
rial manipulation. It’s clean, it’s elegant, it’s easy to explain and there is no room for
managers to fill in the numbers . . .. But I think they are fooling themselves if they
believe that fair value is in any way objective, I just don’t believe it is. Only for a small
sample of, you know, liquid tradable financial instruments you could argue that there is
some objectivity to the value but once you come into the more nonliquid, exotic, per-
haps even not listed instruments, then there is no such thing as an objective fair value.
(analyst)

In sum, investors and analysts do not believe that market values can represent
expected future cash flows. Fair values are not seen as the “answer” in assessing a com-
pany’s performance and estimating its future value. They can in fact invite management
manipulation and engender hyperreality concerns. Such views go up against the expecta-
tions of standard setters that fair values are evaluated as contributing to the objectivity
and transparency of company reporting (see also Barlev and Haddad 2003 on this issue).
The next subsection analyzes users’ evaluations of fair values in relation to the ways finan-
cial analysis is practiced.

Fair value accounting does not resonate with the ways we analyze accounts
As evidenced in the interviews, fair values reported in financial reports are not used in the
ways expected by standard setters. Interviewees made reference to a number of practices
that appear to contradict some of the rationales on which fair value accounting is based.
For example, they say they focus on earnings numbers more than asset and liability val-
ues. “Earnings” is in fact the number needed, as illustrated in the following quote:

I’d say it will always be better if we just got the number that we needed, which was a
nice, high-quality, sustainable earnings number, and whilst you’ve got noise from fair
value accounting entering there, you are not going to get it. I think there’s never going
to be a situation where the number is going to be exactly what we need, but the closer
you can get to it the better. (analyst)

This quote demonstrates the importance of earnings figures for financial analysis.
When analyzing financial statements, investors and analysts split the operating and the
financing activities of an entity. In terms of analyzing operations, investors and analysts
rely on earnings-based measures and thus look at the earnings before interest and taxes
(EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA)

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figures. The need to uncover the “drivers of maintainable cash flows” and to project “real
future cash flows” were mentioned often by interviewees. The emphasis on the balance
sheet over the income statement as advocated through the fair value accounting paradigm
is therefore challenged by financial statement users.
Fair value accounting appears to blur the distinction between value changes and
results from trading activities. Investors and analysts want to be able to separate the two
in their analysis. As the following example given by an interviewee demonstrates, the
emphasis is on what is the best indicator of value creation as opposed to how items are
measured in financial reports:

I have a farm and I have 10 cows and I’ve got it all financed with bank debt. If then
the value of my cows go up as compared to last year, is that then, the result that I gen-
erate, the result that I realize, is that the change in value of my cows or the milk that I
produced and sold? What’s the best indicator of value that I created? Is it the fair value,
the change of the fair value of the cows, or is it the milk I produced and sold? I think
for operating assets it’s the milk that I produced and sold rather than the change in the
fair value of the cows . . .. I don’t believe it has to do with “it is very difficult to measure
the value of the cows,” it is basically we don’t believe that a change in the value of the
cows is any indicator of value creation. (analyst)

Value creation is therefore seen by investors and analysts to be represented through

transactional returns rather than through changes in underlying assets. Having informa-
tion about the fair value of the “cows” does not help in assessing the performance of a
business. The interviewee went on to say that, similarly, one cannot judge the perfor-
mance of a bank by looking at the change in fair value of its loan portfolio. Another
interviewee related this issue to how accounts are used to evaluate the stewardship of
management:

So I think the operations of an entity need to reflect. . .and this comes back to the stew-
ardship point in the conceptual framework, need to reflect these are the operational
assets that management have had control of and these are the profits they generated for
the. . .transactional profits they’ve generated for their shareholders. (investor)

A buy-side analyst and member of the UK accounting standard-setting board at the

time, Nick Anderson (2014, 407), discussing performance measurement at the 2013
ICAEW conference remarked:

Most of the investors I know do not want accounts to fully fair value assets and liabilities,
in an attempt to provide a definitive measure of the value of a business. Under this scen-
ario for fair value, the P&L would just boil down to a series of fair-value changes each
year. It would not really give us any insight into the underlying economics of a business.

Investors and analysts explained that the use of fair values interferes with their assess-
ment of managers’ stewardship. For example, as an interviewee (an investor) explained, to
determine whether management is making a decent return compared to the cost of capital,
the capital employed needs to be at amortized historic cost. Value creation is what is cre-
ating the spread between the Return on Capital Employed (ROCE) and the Weighted
Average Cost of Capital (WACC) and how sustainable this is. Having the capital
employed at fair value moves the spread closer to the cost of capital and therefore leads
to a loss of information which impedes assessing the quality of management. This view
was confirmed by several investors and analysts who commented:

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And I think ultimately management is there to be the steward of shareholders’ capital

and I want to monitor over time how they’ve done. They’ve got this amount of share-
holders’ capital, what have they produced in terms of profitability, cash flow growth,
has it developed over time? As soon as you start doing all these funny things on the bal-
ance sheet you lose your ability to go back in time and say “we gave you this much
money, you invested it here, tell us what the return has been.” (analyst)

What you’re trying to get to in analyzing a company is, the returns that that company
is generating for shareholders. So, cash return on invested capital that the company gen-
erates and it’s going to be increasingly difficult to do that if your balance sheet is essen-
tially just a half-hearted effort at valuing the company because it’s going to be very
difficult to unravel, take out the true capital that’s been invested in the business. (in-
vestor, interviewee’s emphasis)

What these quotes encapsulate is a concern investors and analysts share on the reper-
cussions of fair values to investment decisions and advice. Importantly, the use of fair val-
ues is not just causing annoyance to investors and analysts but can actually affect their
ability to assess how a company’s resources are being managed. An emphasis on valuation
of line items by standard setters is evaluated as making the numbers less helpful for ana-
lyzing management’s actions.
Another major concern of investors and analysts with fair value accounting is the
resulting volatility in reported profits. Changes in fair value recorded in the income state-
ment provide a performance indicator that is seen as “less helpful” for forecasting earn-
ings. This is because fair value gains and losses are not seen as sustainable figures but
instead as one-offs. As two interviewees explained:

I just kind of find it [fair value accounting] is a bit unhelpful because then you end up
with large exceptional moves going through the P&L and it just becomes a mess and
not particularly helpful . . .. It pretty comes back to the fact that I like to try and see the
P&L as more representative of how the business is performing than the balance sheet and I
find the P&L gets messed up by various mark-to-market movements on the balance
sheet that are not necessarily representative of what the long-term value creation that’s
going on in a business is. (investor, emphasis added)

Volatility isn’t wrong per se if you’re measuring the market’s assessment of things and
the market has gone up, well the truth is, the market has gone up and that is decision-
useful information to know how fair values have moved. But it’s not very good for
explaining profitability, and identifying the bits of the change in values which genuinely
do relate to operational performance. (representative of investors and analysts)

Thus, fair value accounting increasingly redefines performance in ways that is not con-
sidered useful for company valuation. The importance of “recurring income predictability”
for calculating price earnings ratios was usually discussed by interviewees. Concerns were
also expressed with the increasing use of non-Generally Accepted Accounting Principles
(GAAP) earnings by management and whether these represent the performance of a busi-
ness better than GAAP earnings.
Fair value accounting is also seen to be adding to the complexity and uncertainty of
reported numbers. The implication is that one needs to be more equipped to process the
disclosures around those fair value numbers. An investor noted:

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There’s a lot more information being published but you hit a point where there is so
many footnotes and so many notes to the notes that actually you get completely lost
because by the time you’ve unravelled that piece of spaghetti you’ve kind of forgotten
where you started from. So the big challenge is how you make the accounts usable and
relevant without making them overly detailed and overly complex . . .. Fair value is not
necessarily helping me do a better job if as a result of that improvement I actually lose
visibility because, yes, technically it’s right or it’s better, but I’ve added 15 layers of
complexity. (investor, interviewee’s emphasis)

Investors and analysts explained that effort and time need to be invested to strip away
the distortions caused to earnings figures by fair value gains and losses. An interviewee
discussing changes made to financial analysis methodologies because of the use of fair val-
ues explained:

There’s just more things to be reversed out. We are always looking for underlying earn-
ings stream, so where there is noise, to do with, for example, derivative gains and losses
may be included in underlying earnings, and even hedging arrangements, you’re just
looking to reverse those out because they’re not something you can forecast. It’s not
something sustainable. Again, own credit adjustments, just another thing to be reversed
out, not of any meaning from an earnings’ perspective certainly. So it’s just more to add
back. I know standard setters hate that. They always think we add back everything
that’s negative. (analyst)

As mentioned above, investors and analysts will not reconstitute the fair value number
itself. Adjusting fair value numbers takes the form of discounting or of just not consider-
ing the fair value numbers in their analysis. An interviewee analyzing banks provided the
examples of comparing a financial instrument s/he is concerned about to market indices
and writing a discount on it, and of subtracting derivatives from total assets when calcu-
lating leverage. Interviewees usually referred to “stripping away” distortions to operating
earnings caused by pensions accounting and amortization of intangibles resulting from
business combinations. They described a process of almost “un-fair valuing” earnings to
enable them to gauge the performance of a business based on its operations. As an inter-
viewee remarked, adjusting fair values is all about getting back to “what is actually
happening”:

We want to understand how the business works but equally in terms of tracking the
progress of the operational side of the business I’d rather have stuff that is less within
that because one-off changes in value to stuff is gonna be less important to the overall
value of a business . . .. The importance of the continuation of the profit and all the
value in the business is in the perpetuity value . . .. It’s not just that these are excep-
tional, it’s that the changes aren’t always flagged up as exceptionals. You just end up
with lots and lots and lots of little things that get aggregated up and make it compli-
cated and then you are trying to work back out all these things to get back to what is
actually really happening. (investor)

Added to the increased expertise required to make these amendments, investors and
analysts report that it also requires a significant amount of time. This point clashes with
the argument that investors and analysts, as expected by standard setters, save time and
effort when provided with fair values. For example, the CFA Institute (2006, 3) wrote, in
a comment letter to the IASB/AcSB (Canadian Accounting Standards Board) paper on
measurement bases for initial recognition:

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Unfortunately, investors who rely on fair values for decision making must expend con-
siderable effort trying to restate to fair value all decision-relevant financial statement
items that are measured at historical cost or some other variation of this basis. Their
success depends on the sufficiency of disclosure and on the relative reliability of the mea-
surements in the disclosures. Most, if not all, of this effort would be eliminated if the
financial reporting standards were to require that companies record assets and liabilities
at fair value at inception with periodic revaluation.

To summarize: based on the interviewees’ testimonies, investors and analysts are inter-
ested in assessing how a business creates and maintains value through transactional
returns rather than through movements in values of underlying assets and liabilities. The
former view is grounded in a traditional idea of matching income and expenses, while the
latter view is grounded in an asset-liability view of financial reporting. Investors and ana-
lysts put much emphasis on operating earnings and how sustainable they are. Viewing fair
value accounting as causing the income statement to be less representative of business per-
formance makes un-fair valuing reported earnings a main analysis task. Contrary to what
would be expected by standard setters, fair values are evaluated as interfering with the
assessment of how management has performed and, overall, as making financial statement
analysis more demanding. Taking the empirical findings as a whole, through their evalua-
tion mode of “performance” investors and analysts question the merits of fair values for
financial analysis as envisaged by the standard setters who measure the worth of fair val-
ues based on the principle of “valuation.” In the next section the theoretical implications
of these findings are discussed.

4. Further analysis
This exploration into the world of investors and analysts points to a perplexing situation
that calls for further reflection. Investors and analysts are dissatisfied with the use of fair
values in financial reports, but do not openly express this dissatisfaction, or actively lobby
against fair values. At the same time, the standard setters continue to get on with their
work, promulgating standards that investors and analysts do not fully value in their work,
most probably without having much knowledge of the evidence presented above. Thus,
the tension between the two modes of evaluating fair values remains unresolved. The theo-
retical question that emerges is: How do investors’/analysts’ and standard setters’ evalua-
tions of fair values coexist in the standard-setting environment?
The performance and valuation modes of evaluating the worth of fair values are fric-
tional but not mutually exclusive. There is tension between the two ways of evaluating fair
values, and this tension cannot be downplayed, yet there is no battle observed between
users and standard setters. The evaluative principles can thus be characterized by disso-
nance rather than by intractable conflict. Dissonance here simply means that there is dis-
agreement among the key actors evaluating fair values but there is also a form of stability
in their relationship—a principled disagreement about what counts (Stark 2009). The rela-
tionship between investors and analysts and standard setting is dissonant as accounting is
not used in practice in the ways expected by standard setters. Even though the production
of conceptually appealing standards gives precedence to enacting a set of values that are
not shared by investors and analysts, the products that emerge appear to still be usable by
them. Both users and standard setters are interested in accounting informing valuation
and stewardship decisions through reliable quantifications of value. Yet, what we observe
in the findings is users and standard setters holding differing values as to what is value-
relevant, what represents value creation, how management stewardship can be assessed,
and what constitutes objective information, with these values leading to the different ways
of evaluating fair values. This difference in values appears to relate to misaligned views on

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accounting valuation—the crux of the matter being whether quantifications of value

should be provided by the managers of a company or by the market, and the implications
of this for thorny issues such as the valuation of debt instruments. Standard setters are
not in the job of predicting future values but instead focus on promulgating accounting
valuation practices that will produce the “right” numbers on the balance sheet. Yet for
the user, each number is one in a chain of estimates and s/he is therefore not interested in
the purity of fair values. That accounting information is adjusted and consumed together
with other information makes the calculative accuracy of accounting values peripheral.
By looking at the situation as one of dissonance with two sets of actors experiencing
some friction, and in which neither side has quite understood the way of thinking of the
other, the analysis is moved away from one side getting the other completely wrong. As
Stark (2009, 192) argues “misunderstandings are not incorrect understandings.” Different
evaluations of fair values do not mean that either side is getting the worth of fair values
wrong. If for standard setters the pursuit for fair values lies in an ideology of a more
financialized view of accounting, for the users it is all about fair values changing work
habits in ways that cause frustration. The difference in evaluations of fair values is evi-
dence of “absence of linkages” (Durocher and Gendron 2011) between users and standard
setters, yet it is the nature of this absence of linkages that enables the differing evaluations
to live together. Users and standard setters are “talking past each other” when evaluating
fair values. The analysis above demonstrates that investors and analysts are capable of
critical reflection and hence are not “docile” in criticizing accounting. Despite their disap-
pointment and frustration, they would not maintain that fair values are completely unnec-
essary, or unworkable, or express their discontent over fair values publicly. Investors and
analysts are also not “powerless.” Unlike preparers and auditors, users do not have to
comply with accounting standards. If they found the use of fair values in financial reports
dangerously wrong, it is reasonable to assume that they would organize a resistance, as
the standard setters are not unassailable.
The coexistence of different ways of evaluating fair values can also be explained by
the general uncertainty over the worth of fair values. Accounting has always experienced
crises in terms of how it can represent performance in which the debate on whether, and
how, to include fair values in financial reports featured prominently (Georgiou and Jack
2011; Hoffman and Detzen 2013; Macve 2015; Watanabe 2014). As Hopwood has put it,
“accounting has been a craft that has had no essence” (2007, 1367), meaning that it has
no fundamental drive such as “justice” in law or “wellness” in medicine. Changes in
accounting valuation practices appear to be made in the name of an “accounting poten-
tial” (Hopwood 1987, 211), rather than its functioning. It is therefore not surprising that
changes in accounting valuation practices produce frictional conceptions of value. The
image that emerges from the interviews is that fair values can in fact perpetuate disso-
nance on the worth of accounting. The fair value debate demonstrates that accounting
lacks essence (Miller and Power 2013) and that it lacks a solid knowledge basis (Durocher
and Gendron 2014). In Stark’s (2009) terms, accounting is a “heterarchy” as there is no
predetermined ordering of contentious principles of worth. Seen in these terms, the find-
ings above suggest that efforts to deal with accounting measurement tend to highlight and
extend the dissonance over how accounting can serve decision-making needs. The main
point is that users and standard setters hold different views on something for which there
is no right answer.
The tension between the two evaluative principles remains unresolved and we there-
fore have what Stark labels as an “indeterminate situation” (2009, 14). Actors maintain
their individual positions without determining, and agreeing on, the underlying issues.
Standard setters do not want constituents complaining too much about standards, and
financial statement users just want to get on with valuing companies. It is in this sense

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that the lack of essence, or heterarchical nature, of accounting may organize dissonance in
that if there was an overarchingly superior principle for accounting valuation the two
groups may end up fighting. It is as if the lack of essence “configures” (Alexius and Tamm
Hallstr€om 2014) the plurality of values in ways that they peacefully coexist despite tension.
Recourse to a single evaluative principle may lead to a breakdown of the relationship
between the two groups. If, for example, an even more conceptual approach to accounting
valuation is taken, perhaps drawing more on financial economics, users may actively resist.
Conversely, if accounting is made too pragmatic, perhaps taking a more simplified form
based on actual transactions, standard setters would be out of a job. Paradoxically, there-
fore, for accounting to be determinate, it must be indeterminate. There is thus no need to
privilege either the performance or the valuation principle which implies that a compro-
mise is unnecessary, if not impracticable. There is no need for a dominant logic to win
(Thevenot 2001) through an explicit agreement on the worth of fair values. Fair value
measurement therefore constitutes a “site of dissonance” (Chenhall et al. 2013; Hutter and
Stark 2015; Mennicken and Power 2015) in which differing evaluations arise and the ten-
sion between these evaluations remains unresolved.

5. Conclusions
This paper had two main aims. First, it sought to explore how financial statement users
evaluate fair values and how their evaluations relate to those expected of them by
standard setters. Using empirical evidence, collected mainly through interviews with inves-
tors and analysts, it is shown here that these evaluations differ. Investors and analysts do
not value fair values as expected by standard setters, as they are interested in accounting
numbers that help them assess how the business has performed, rather than accounting
numbers that provide market valuations of individual assets and liabilities. Fair values
have been a controversial issue for accounting standard setters (Morley 2016; Power 2010;
Whittington 2008), accounting practitioners (Barker and Schulte 2017; Durocher and Gen-
dron 2014; Okamoto 2014; Smith-Lacroix, Durocher, and Gendron 2011), and accounting
academics (Macve 2010), especially since the outbreak of the current financial crisis (Laux
and Leuz 2009). What we learn new here is that this controversy is also present in a set-
ting which has received much less attention by researchers: that of the actual use of
accounting in financial analysis processes. The finding that users and standard setters are
in disagreement over the worth of fair values is surprising given that standards are devel-
oped to serve users’ needs. One would expect users and standard setters to be in a harmo-
nious relationship over fair values as both groups are operating within the same capital
market-driven environment in which current market information is considered valuable
for predicting future profitability.
The second aim of this paper was to draw theoretical insights from the empirical evi-
dence. Interestingly, the differing evaluations of fair values do not result in a situation of
conflict, or domination, but rather simply coexist. This is not because standard setters can
afford to ignore users’ needs (Young 2006) or are misguided as to how users use account-
ing information (O’Brien 2009), or because users are indifferent, or compliant, to account-
ing (Durocher et al. 2007; Durocher and Gendron 2011), but rather because accounting
valuation is bound to be characterized by dissonant views. The notion of dissonance used
here helps us avoid support for one or the other group, or position, and thus offers an
alternative interpretation of the relationship between users and standard setters. There is
no need for a compromise on one position from either side, or no need for an explicit
agreement on the worth of fair values. This analysis complements prior work in financial
accounting by turning away from understandings of standard setting as political, where
the standard setters strive to find acceptable compromises (Botzem 2012; Detzen 2016).
This is evidently the case with preparers and auditors who have a more direct vested

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interest and exercise more lobbying in the standard-setting process. Instead, the relation-
ship between users and standard setters is a special case in which power does not appear
to be at play.
Based on the empirical evidence and analysis here no definitive conclusions can be
reached on the extent to which fair values are valuable in capital markets. Contradicting
conceptions of such worth can have authority and operate at once. For example, when the
capital market in the abstract is seen as the “user” of accounts, fair values can be concur-
rently seen as having no value-accretive properties as they simply turn accounts into a
self-referential mirror of the market (Magnan 2009), and as contributing to a better infor-
mation environment for investors and analysts (Horton, Serafeim, and Serafeim 2013).
When it comes to the actual “flesh and blood” user of accounts, findings here tell us that
fair values do not resonate with how this user works and are not considered to enable bet-
ter forecasting of future performance. Fair value is clearly an accounting valuation para-
digm which is valorized more by standard setters rather than by capital market
participants. In these terms, if users’ critical evaluations of fair values are taken to indicate
that fair values are eroding the worth of financial reports, it is ironic that in pursuing
value, accounting is losing value (see also Hail 2013; Lev and Gu 2016 on how accounting
has been losing relevance for decision making).
Yet, the dissonant views discovered here demonstrate how the worth of fair values
remains stubbornly ambiguous. Perhaps the worth of accounting rests in it as part of a
governance infrastructure and not in it as providing valuations, or a function with explicit
usefulness criteria. The picture to emerge from the evidence is that the answering machine
purpose of accounting is redundant for the users of accounts. We have learnt here that
there is no mechanical relationship between accounting numbers and what investors and
analysts do and that fair values are at best loosely coupled to the ways they analyze finan-
cial performance. This implies that there is no right accounting valuation method that
would satisfy their needs. In fact, the pursuit for measurement idealism by standard setters
appears not only difficult to translate into the pragmatism of financial statement analysis
but also futile. Ironically, if decision-usefulness were to have coherence, accounting would
need to be turned into “what investors and analysts do with accounting” which implies
much more than “accountability” as an alternative rationale for setting accounting stan-
dards (Williams and Ravenscroft 2015). The dissonance observed here therefore casts
doubts on conceptions of standards as pragmatic outcomes to market demands and as
standard setting as an evolutionary process leading to improved accounting. Instead, stan-
dard setting can be thought of as a never-ending experiment in accounting valuation prac-
tices. Discussions on fair values are therefore expected to continue and to give rise to
frictional (e)valuations.
In this paper we have seen that fair values are evaluated differently by users and
standard setters and that these differing evaluations do not result in conflict or compromise.
What is then the value of research in this area? The functionalist view holds that a better
alignment of the views between users and standard setters will lead to improved accounting,
and hence to improved investment decisions, making investigating user views a worthwhile
task for accounting researchers (see, e.g., Barth 2013; Jonas and Young 1998). The analysis
here can be seen as a basis to challenge this view and to call for a broader research agenda
aimed towards investigating the worth of accounting regulation for capital markets. This is
an agenda with which, rather than investigating user views with the aim of providing empir-
ical inputs into the decision-making processes of standard setters, the research aim becomes
to problematize the worth of standards (Humphrey 2008). The analysis in this paper is
exploratory, and hence tentative, serving as an invitation for further work in this area. It is
hoped that others will be motivated to challenge, or extend, the main arguments presented
here. There is demonstrably much to be gained, for our understandings of accounting and

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capital markets, by turning the financial statement user from a rhetorical resource to a sub-
ject of empirical investigation. Promising research questions include: Do financial statement
users share the same concerns as standard setters in the current rethinking of accounting for
goodwill impairment? What is the nature of the recent dispute between a group of users and
the IASB over prudence? (see, e.g., Barker 2015). Is a new statement of financial perfor-
mance, as currently debated by the IASB, likely to better serve users’ needs? How do stan-
dard setters’ intentions translate into the practice of analyzing financial reports? Are
arrangements alternative to IFRS, such as integrated reporting (see, e.g., Humphrey,
O’Dwyer, and Unerman 2017; van Bommel 2014), likely to produce more value for inves-
tors and analysts? Studying unsettling situations, where accounting practices give rise to
diverse viewpoints among users and standard setters can provide us with insights into the
(absence of) worth of accounting in practice.

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