The application of “fair value” accounting standards to the income statements of companies listed in the Portuguese Stock Index-20 (PSI-20)

• Autor(a) principal: Cardão-Pito, Tiago
• Data de Publicação: 2016
• Outros Autores: Barros, Jorge
• Tipo de documento: Artigo
• Idioma: eng; por
• Título da fonte: Revista Brasileira de Gestão de Negócios (Online)
• Texto Completo: https://rbgn.fecap.br/RBGN/article/view/2470
• topic: “Fair value”; historical cost; taxes; public revenue.; “Justo valor”; custo histórico; impostos; receitas públicas.; “Justo valor”; custo histórico; impostos; receitas públicas.

Purpose – “Fair value” accounting standards are not consensual.Supporters claim that they offer a methodology to find the “correct”value of accounting items, whereas critics contend that “fair value”accounting reduces the reliability of financial statements through acomplex and unpractical method based on subjective information. Still,the impacts of “fair value” accounting upon taxes and public revenuesare rarely discussed.Design/methodology/approach – The Portuguese case allows us tostudy taxation and public revenues. Through European Union norms,“fair value” standards have become mandatory after 2005 for companieslisted in European stock-exchanges. Nevertheless, Portuguese corporatetax law was reformulated in 2010 to strongly restrict the use of “fairvalue” for taxation purposes. We study the use of “fair value” in theIncome Statements of the largest companies listed in the Portugueseexchange between 2005 and 2012.Findings – If Portugal had not adopted “fair value” standards, its taxrevenue would have been higher. Over all analyzed years and in almostall studied companies, average “fair value” adjustments are negative.Although a statistical association between negative adjustments and theeconomic cycle was found, this statistical association is not very strong.Therefore, the economic cycle cannot be used as the only explanationfor the use of “fair value”.Originality/value – This paper demonstrates that discussionsconcerning the “fair value” accounting method must not ignore itspossible impacts on government taxes and public revenue.