International Journal of Accounting and

Financial Management Research (IJAFMR)

ISSN(P): 2249-6882; ISSN(E): 2249-7994
Vol. 4, Issue 4, Aug 2014, 1-6
TJPRC Pvt. Ltd.

THE ROLE OF FAIR VALUE STANDARDS IN MAKING DECISIONS ON PURCHASING

AND SELLING ASSETS IN THE KINGDOM OF BAHRAIN
ABDULQAWI A. HEZABR
Assistant Professor, Accounting & Finance, Applied Science University, P.O. Box 5055 Jufair, Kingdom of Bahrain

ABSTRACT
This paper aims at knowing the theoretical philosophy related to fair value. It also deals with the accusations made
against this principle especially during the financial crisis.
This research drafted and tested the relevant hypothesis in order to know the extent to which extent the
decision- makers realize the concept of fair value as well as its influence on decisions on sales and purchases.
The study concluded that the concept of fair value has a profound effect on these decisions; the researcher
recommended the continuity in dealing in such standard? together with improving the disclosure process by issuing
binding legal codes.

KEYWORDS: Fair Value, Purchase Decisions, Sales Decisions, Making Decisions, Assets
INTRODUCTION
Financial data based upon common measuring bases-such as the historical cost principles-were unable to show the
financial position and the results of operations owing to the economic events which made these data lose their importance.
It became clear that with the use of traditional accounting, the financial values in the financial statements could not meet
investor's needs to take the appropriate economic decisions based upon fair information that records the events of the past
and does not consider the present or the future.
The issue of measuring fair value emerged and was given many definitions after the deterioration of the Inron
Corporation which made it lose the consistency feature and became a gap that helped the boards of banks to manipulate
profits and magnify the assets. Thus, and after much argument, the American accounting standard no.157 Measurement of
fair value, was approved on the basis that the markets have the ability to introduce the best and more stable and fair assets.
Problem of the Study
Defining fair value in blockbuster markets, with the banks and the loan companies approving it led to the
emergence of many issues related to loans. Since fair value, according to standard 157, stipulates that assets which has no
blockbuster markets must be evaluated according to the best information available, thus the continued decrease in and the
negative anticipations for the values of property mortgages did not only affect these bad mortgages.
Accounting standards in general, and the fair value accounting standards in particular faced strong criticism from
the persons interested observers because they do not provide sufficient information to make decisions, especially in
relation to fixed assets through the following question:

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What is the role of fair value accounting standards in making decisions?

To what extent do decision-makers understand the concept of fair value?

The Study Hypothesis

First Hypothesis: There is no statistically significant link between the fair value standards and making a decision
on purchasing or selling assets in Bahrain.
Second Hypothesis: There is no statistically significant link between the demographic variables
(experience, job position) and the standards of fair value and making the decisions on purchasing and selling assets in
Bahrain.
Concept of Fair Value
Due to the fact that the fair values of the net loans conform to prices, this information is available from the
predictions. With time, and with the discovery and disclosure of the fair values that appear clearly, consequently, the
unusual profits variable depends on the predictions of analysts that appear within the design. The fair values of loans are
considered to be critical in the first few years after executing standard 107, but they have no significance for the year 1994.
This means that the analysts knew how to obtain the information related to the estimation of the fair value of the loans.
There is other additional evidence that show the skill of the analysts in estimating unusual unexpected profits through the
fair value variable. After symbolizing the variable of fair value in the unusual profits for both of the years 1992 and 1993,
it occurred in 1994 in a way that enabled the analysts to learn how to do this during the previous two years.
Reasons for Taking an Interest in Fair Value
All researchers in the field of the international financial crisis agree that the main reason for the international
crisis was the problem of real estate mortgages in the USA and the consequent bankruptcy and deteriorations of the
international corporations that represented one of the pillars of the international economy. The problem of real estate
mortgages resulted from two situations. First: The market value of property mortgages was assessed at well over their real
value. Second: Debts were doubled through the repeated sale of debts based upon over-valued mortgages among the
financial institutions; with the inability of mortgage-holders to pay their mortgages and the institutions having to sell the
mortgaged properties at less than the value required to pay the liabilities led to considerable deterioration of financial
institutions. Studying the standards of fair value with the emergence of the crisis requires knowing the relationship between
the emergence of the financial crisis and the estimation of market value and proving it in an accounting manner. First of
all, analysts agree that the financial crisis emerged due to manipulation by the administration or its representatives of the
process of evaluating real estate mortgages. Estimating the fair value of the financial tools mentioned in the IAS39 refers
explicitly to the necessity for these estimates to be objective and distinguished by a high degree of credibility. The standard
does not allow any random estimations by either increasing or decreasing the value of the financial tools. However, there
was agreement on estimating fair value based on the opinion of specialists in the evaluation process who are known for
their professionalism and neutrality and whom the administration is responsible for choosing. Consequently, the extent of
the integrity of the estimation process is carried, positively and negatively, by the administration and accounting standards
have no shortcomings in this field after the general approaches for the inputs, outputs and processes of the evaluation
process were set up.

Impact Factor (JCC): 4.4251

Index Copernicus Value (ICV): 3.0

The Role of Fair Value Standards in Making Decisions on Purchasing and Selling Assets in the Kingdom of Bahrain

Standards of International Accounting

One of the most important reasons for taking an interest in the IAS during the last three decades is the need for
these standards to be a foundation that guides international commercial operations that have started to grow and develop
rapidly between the countries of the world, in addition to the doubling of investments among the different European
countries and the possibility of their doubling again in the next decade. Moreover, the coordination between different
countries and organizations concerned in agreeing on international standards will make comparison between companies
easy, however, international investments cannot be successful without international standards that are agreed upon.
Standard here means the accounting rule. Standard, linguistically speaking, means a model put in place in the light
of which the weight, length or quality of any object is measured. In the case of accounting, it means the main guide in
measuring the processes, events and circumstances that affect the financial position and the outcome of the establishments
business. The accounting rule, on the other hand, represents the guides to which professionals refer in order to support their
jurisprudence. It also represents a professional description for the generally accepted professional practices and aims at
decreasing the degree of expression or practice in similar circumstances and is approved as a general framework to
evaluate the quality and efficiency of the technical work and to determine the nature and depth of professional
responsibility.
The accounting standard is needed for the purpose of defining and measuring financial events and defining the
appropriate method for measuring, then taking the results to the users of the financial statements in order to take the right
decision.
Lack of accounting standards will lead to using accounting methods that might be invalid, in addition to the
possibility of using different bases to address the same or similar processes and to prepare financial statements according to
the wishes of the regulators, in addition to the difficulty of making decisions either internally or externally.
Taking an interest in international standards, the supervising authorities in the GCC countries have issued some
instructions that require compliance with these standards.
Characteristics of Accounting Information
Accounting information that helps in increasing knowledge and decreasing uncertainty and in supporting
decision- making before and during the financial crisis shall be characterized by the following:- (Hussein, 1997)

Suitability: Meaning that the information shall suit the purpose for which it was prepared. Suitable information is
that which affects the behavior of the decision-maker and makes him take a decision that differs from one which
he may have taken in the absence of such information. As for unsuitable information, its value is almost zero, in
spite of the cost and efforts expended in order to collect and analyze it is a useless charge on the establishment.

Appropriate Timing: In order for the information to satisfy the purpose for which it is used, it should be made
available at a suitable time, meaning that the information should be offered at the time when it is needed.

Ease and Clarity: Information should be free from ambiguity. It should be clear and understood by its users.
Information may not include any words, symbols, terms or mathematical expressions or unknown formulas that
its users may not understand.

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Abdulqawi A. Hezabr

Validity and Accuracy: Valid information means that it should express facts accurately, that there should be no
mistakes when producing, collecting and determining this information. The extent of accuracy needed for
information depends on the time scope of this information. In case the information is related to future
anticipations, then its accuracy lessens if it addresses a distant future, and vice versa. Invalid and inaccurate
information gives opposite results, meaning that it will be harmful and useless even if it is suitable.

Scope: Meaning that the information submitted shall be complete information that covers all the aspects and
interests of its users. Moreover, it should be in its final form, which means that its user will not have to perform
any additional operations to get the information.

Acceptance: Meaning that the information is to be provided in the form or the method accepted by the user of this
information according to the form and content. As for its form, information can be provided in the form of a
report written in a clear and understandable style or in the form of tables, statistics or charts.

Cost: The process of inserting or processing the information has a cost that should be compared to the benefit we
will get by using this information. The information has a great value if it contributes to decreasing uncertainty,
i.e., the information shall be economic, meaning that it will not cost more than its users capacity.

The Practical Side

The Study Sample
The study population is composed of auditors and investors in Bahrain; a stratified sample was chosen
Consistency of the Study Instrument
The internal consistency coefficient for the study instrument was extracted according 1-to the answers of the study
sample reaching a number of 110 persons, based upon the Cronbach Alpha test
It can be noted from table (2) that the consistency coefficients for all the study dimensions are high and they are
good consistency rates.
Study Findings
To answer this question, the arithmetic averages and the standard deviations for the study sample were found
regarding the role of the fair value on the decisions to purchase or sell assets to know the level of awareness for
decision-makers to the fair value.
It Can Be Noted From Table (3) That the Study Sample Population Believes That the Fair Value Standards Affect
the Decision of Purchasing and Selling the Fixed Assets
Hypothesis Test
First Hypothesis Test: There are no statistically significant differences between the standards of fair value and
the decisions to purchase or sell assets
To test this hypothesis, T-test was used for independent samples.

Impact Factor (JCC): 4.4251

Index Copernicus Value (ICV): 3.0

The Role of Fair Value Standards in Making Decisions on Purchasing and Selling Assets in the Kingdom of Bahrain

Table (4) shows that there are no statistically significant differences at the significance level because the
significance level is more than (0.05), consequently the study hypothesis is acceptable, and it states that there is no
statistically significant relation between the standards of fair value and the decisions of purchasing or selling fixed assets.
Recommendations

Increase awareness of the concept of fair value for decision-makers by holding forums and distributing pamphlets
constantly to take the appropriate decisions.?

Fair value must be disclosed in the public budgets by obligating companies to comply with state

REFERENCES
1.

Alhajj, Oraba, Nour Eddin, Tamgadin (2008) The importance of having a system for managing crisis in the
light of information. Fourth international forum regarding crisis management in the light of knowledge
economy, - 20th August 1955university - Skikda -Algeria

2.

Hassan, Nagah (2008) The current financial crisis and its anticipated reflections Itehad newspaper, Iraq,
issue 1967.

3.

Hayan, Ahmed Salman (2008), International financial crisis and its repercussions Thawra newspaper, issue
no. 13745, Damascus.

4.

Khalfawy, Shams (2008) Role of communication in facing the crisi in the light of information Fourth
international forum regarding crisis management in the light of knowledge economy, - 20th August
1955university - Skikda Algeria

5.

El-rabiI, Hakem (2008) Managing the financial crisis using the information technology in the light of
knowledge economy Fourth international forum regarding crisis management in the light of knowledge
economy, - 20th August 1955 university - Skikda Algeria

6.

Resowan (2003) International information system. The position of the Arab world on the new map of the
world, Arab Center for Strategic Studies.

7.

AlRawsan, Usama (2004) Managing knowledge and e-learning, Fourth annual international scientific
conference: Managing knowledge in the Arab World, Zeitouna Jordanian University.

8.

El-Zobi, Yanen (2005): Acccounting measurement based on the fair market value. Unpublished Masters
thesis, Al El-Bayt University

9.

Samir, Moshi & Salah Eddin, Sawalem (2008) Information systems and its role in managing and processing
crisis Fourth international forum regarding crisis management in the light of knowledge economy, - 20th August
1955 university - Skikda Algeria

10. Al-Arag, Adnan 2008, International financial crisis,

A forum titled The International crisis and its

influence on Jordan Middle-East University for Postgraduate studies, 29

11. Matar, Mohammed, 2008 The International financial crisis and its influence on Jordan, A forum titled
The International crisis and its influence on Jordan. Middle-East University for Postgraduate studies, 29
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editor@tjprc.org

Abdulqawi A. Hezabr

12. Matar, Moahmmed, 2008, Arab region and the repercussions of the international financial crisis A Forum
organized by Talal Abu Ghazal for business and the Jordanian -German university meeting

APPENDICES
Table 1: The Study Population Shall be Distributed According to the Demographic Variables
Study Variables
Expertise

Job position

Variables Levels
3-1
6-4years
more than 7-10
General manager
Department chief
supervisor

No.
52
30
28
9
50
51

Percentage
%47
%27
%.25
%8
%45
46%

Table 2: Cronbach Alpha Coefficient Values for the Study Dimensions

Scope
Fair value standard
Decision of purchasing and selling
assets

Cronbach Alpha
0.98
0.65

Table 3: Arithmetic Averages and Standard Deviations for the Influence of the Standards Related to the Fair Value
and the Decisions for Purchasing and Selling Assets
Scope
No.
1

Question Content
Applying the standards of fair value
has a main role in the purchase
decision
Using the fair value standard in the
accounting of the items out side the
budgt leads to selling assets
Using the fair value approach in
measuring the performance of the
financial derivatives is a reason for
taking a decision
Using the fair value in measuring
assets and real estate investments is a
reason to keep the asset`
It is believed that the fair value
standard doesnt affect the decision of
purchasing and selling

Arithmetic
Average

Standard
Deviation

Rank

Level

2.35

0.751

medium

3.10

0.981

High

1.56

0.882

High

3.20

0.552

Low

3.90

0.752

medium

Table 4: Findings of the Testing the First Hypothesis

Arithmetic Average Averages Difference
T
Freedom Degrees
3.22
0.55
0.88
109
*Has a Statistical Significance at a Significance Level (=0.05)

Impact Factor (JCC): 4.4251

Significance Level
*0.000

Index Copernicus Value (ICV): 3.0