Abstract
Fair value accounting for financial liabilities poses unique challenges due to the unavailability of prices in the open trading market for most liabilities. Typically, valuations require estimations and adjustments to meet entity-specific measurement requirements. This gives rise to the risk of measurement error. The reliability of financial statements could be compromised due to the high degree of estimation involved. This research investigated the extent of financial liabilities measured at fair value in the South African banking sector, in the absence of quoted market prices, including a review of compliance with disclosure requirements of International Financial Reporting Standards. The sample for the study included all banks listed on the Johannesburg Stock Exchange, where publicly available financial statements were used as a source of information. Financial liabilities measured at fair value were analysed to determine the extent of where quoted market prices were not available for the valuation of these financial liabilities. As part of the research methodology, a disclosure checklist was completed to evaluate the level of compliance with International Financial Reporting Standard (IFRS) 13 and International Financial Reporting Standard (IFRS 7) disclosure requirements. The research revealed that financial liabilities form a significant portion of banks’ liabilities. These financial liabilities were measured either at amortised cost or fair value, the latter accounting for 14% of the total financial liabilities measured. The research shows that fair value measurement for financial liabilities requires a high level of estimation due to the unavailability of price information of most liabilities in the open market. The use of fair value in measuring financial liabilities was found to be significant in the South African banking sector and compliance with disclosure requirements was high. Compliance with IFRS 7 requirements was found to be generally high. This research could be useful to investors and other users placing reliance on financial statements as it sheds light on the prevalence of financial liabilities measured at fair value categorised under Level 2 and 3 input hierarchies, which may lead to reliability issues due to a high degree of estimation...
M.Com. (International Accounting)