The Impact of Fair Value Measurements on Income Statement: IFRS 13 "an Application Study in Insurance Companies"

Abstract

There has been a steady shift in accounting standards over the past few years, moving away from historical cost measure towards fair value. Proponents view this as a way to deal with traditional criticisms of accounting valuation while making information more relevant to users.This paper attempts to shed some light on this issue by restating some of the financial assets of an insurance company, applying fair value instead of historical-cost-based valuations, and comparing data emerged by using historical costs principle and fair value principle. We find that the numbers on the face of the income statement change considerably and observe that the magnitude of these changes varies between the two policies. However, these findings seem to indicate that a change from historical-cost to fair-value accounting could achieve different results.

Keywords:  Fair value, Historical cost, comprehensive income.