Forensics Journal - Stevenson University 2014 | Page 42

FORENSICS JOURNAL nies to miss their targets as well. The study identified that due to this pressure and the potential loss resulting from fair value accounting, firms will be more likely to set up sales for their available securities in order to offset these losses with gains (He, Wong and Young). While the intended benefit of fair value accounting was to encourage transparency, the fair market values were difficult to determine due to the differences in Chinese markets compared to other countries – the Chinese rarely exchanges assets between independent parties (He, Wong and Young). Despite efforts to produce a more accurate value for Chinese assets, fair value accounting actually devalued the assets to an amount lower than the company would receive when it sold the asset. While convergence of International Standards globally would be ideal, the Chinese case study highlights the fact that markets differ around the world. for valuation error due to improperly applied valuation principles. When using externally developed appraisals, the personnel involved should always be independent valuation experts, and their certifications and references verified (Putra). Hiring an independent expert will eliminate the risk of a tainted report due to conflicts of interest or lack of technical expertise. Based on the research presented, the IFRS revaluation concept for fixed assets may result in improper valuation in the United States. Despite Canada’s success implementing IFRS full-scale, IFRS principles have not had the same effect for all countries. In countries such as Jordan with a volatile economy, investors suffered from severe distortion in company financial statements. Fair value principles require recognition of asset market value fluctuation in earnings, which can adversely affect a company’s financial position. Over the years, the U.S. has made a concerted effort to improve U.S. generally accepted accounting principles and provide investors with accurate information. Implementing a standard similar to IFRS 13 could compromise the integrity of financial information that the U.S. worked so hard to improve. Fair value accounting also relies heavily on estimates and assumptions that can leave companies vulnerable to fraud, especially when considering Level 3 fair value inputs. VALUATION FRAUD CONSIDERATIONS AND CONCLUSIONS Appraisals can be developed either internally or externally, and both are acceptable under IFRS fair value accounting standards. When appraisals are used to determine the fair value asset, additional considerations need to be made. Li Dharma Putra identifies five situations in which fraudulent valuations can result: bribed appraisers, conflicts of interest, unwitting accomplices, sham valuation specialists, and altered reports (Putra). Bribed appraisers and conflicts of interest involve fraudulent activity that results in a valuation preferred by management: conflicts of interest involve a concealed relationship and bribes involve appraisers receiving unnecessary consideration in return for a certain appraisal result (Putra). When bribed appraisers and conflicts of interest are involved, the valuation experts may have the required skills needed to perform the valuation but influence from management or another party results in an inaccurate valuation. An unwitting accomplice involves either valuation personnel lacking appropriate knowledge or carelessness in valuation preparation. (Putra). Unlike the last two forms of valuation fraud, this accounting fraud involves a valuation analyst who is unaware that he or she is inaccurately preparing a valuation. Sham valuation specialist fraud involves a fictitious valuation report that is prepared by a nonexistent valuation analyst (Putra). Unlike other valuation fraud, no valuation analyst is involved. Therefore, the fraud originates from within the company requiring the valuation. Lastly, an altered valuation report scheme occurs when a company receives a valuation report and alters it to show a more favorable result (Putra). The original valuation may have been prepared by a qualified appraiser with proper ethics and expertise however, fraud have occurred because companies alter the valuation reports and manipulate the results. While the benefits of reliable information may outweigh the risk of fraud when fair valuing short-term assets, long-term assets such as property, plant, and equipment do not benefit from fair value accounting. Instead of implementing IFRS 13 when converging to international standards, the U.S. should continue to disallow fair value reporting for fixed assets. Such an action will preserve the integrity of U.S. financial reporting and protect the interests of investors. REFERENCES Association of Certified Fraud Examiners. Report to the Nations on Occupational Fraud and Abuse. N.p.: n.p., 2012. ACFE. Web. 11 Mar. 2014. . “Best of 2008: Fair Value.” CFO. CFO, 24 Dec. 2008. Web. 18 Feb. 2013. . Centre for Economic Policy Research. “The Future of Regulatory Reform.” Center for Economic Policy Research. N.p., 4 Oct. 2010. Web. 17 Feb. 2013. . Certified General Accountants Association of Canada. The Case for International Accounting Standards in Canada. N.p.: n.p., 1999. Certified General Accountants Association of Canada. Web. 11 Mar. 2014. . Based upon the five situations in which fraudulent valuations can result, counter measures can be iden Y