ACCTG 502 | Session 2 | The effect of fair value accounting on the performance evaluation role of earnings - 2020

Ivy Xiying Zhang, Yong Zhang

Introduction:

Using the setting of IFRS adoption, DeFond, Hu, Hung, and Li (2020) examine the impact of fair value accounting on the usefulness of earnings in executive performance evaluation and compensation. In this discussion, we review the research design, discuss the implications of the findings, and offer suggestions for future research. In particular, DeFond et al.'s measure of the impact of fair value accounting may contain significant measurement error, which calls for additional analyses. We believe that DeFond et al. address an important question motivated by recent developments in accounting standard setting. However, the broader question of whether and how IFRS fair value provisions affect the way compensation contracts are written and the usefulness of accounting information, not just earnings, has not been fully understood.