Fair Value Hierarchy And Financial Assets Information Manipulation

In the field of financial accounting,the financialization of non-financial companies means the increasing role of financial assets,financial liabilities,gains and losses in financial activities in non-financial companies' financial reports.As the most relevant measurement attribute,fair value should reveal the true value and risk of financial assets.The quality of fair value information is very important for investors to make effective decisions.However,the manager's information manipulation hinders the timely expression of the value and risk of financial assets,and restricts the further development of fair value measurement attributes.In response to users' requests for more reliable fair value information,on January 26,2014,the Ministry of Finance issued Accounting Standards for Business Enterprises No.39,Fair Value Measurements.Which requires that firms disclose 3-level fair value information in the notes.The implementation of fair value hierarchy measurement provides more information about the measurement of financial assets,which provides a valuable opportunity for more in-depth analysis of financial assets information manipulation.At present,the research on fair value hierarchy measurement and the manipulation of financial assets information mostly focuse on one specific method or fair value information measured at a certain level.However,each accounting process is inseparable and influential,and different information manipulation methods interact and restrict each other.We should build a systematic understanding of the influence of the information manipulation behavior on the quality of financial assets information.What's more,the implementation of fair value hierarchy measurement not onlycan help users to distinguish the reliability of financial assets information,but also users can understand the entire accounting process of financial assets,such as recognition,measurement and disclosure.It can help users identify managers' earnings management behavior.Therefore,through fair value hierarchy information,this paper analyses the information manipulation ways and degree of financial assets measured at different levels of fair value,and explores the relationship between fair value hierarchy information disclosed in financial report notes and financial assets information disclosed in financial statements.This paper provides a new perspective for the research on the manipulation of financial assets information,and expands the research field of fair value hierarchy measurement.Using a sample of listed non-financial companies in Shanghai and Shenzhen Stock Exchanges from 2010 to 2017,this paper firstly investigates the relationship between fair value hierarchy information and the manipulation of classification,fair value estimation,and derecognition of financial assets.Secondly,this paper examines the changes in the relationship between financial assets measured at different levels of fair value and financial assets information manipulation before and after the implementation of the Accounting Standards for Business Enterprises No.39,in order to examine the effect of this standard.Finally,this paper compares the differences between fair value hierarchy information and financial assets information manipulation methods in companies that pay different levels of audit fees,and explores the intrinsic relationship between fair value hierarchy measurement and audit fees.The main conclusions of this paper are as follows:(1)Non-financial companies manipulate the classification of financial assets,fair value estimation,and derecognition.Companies will choose different methods when it comes to financial assets valued at different levels of fair value.The estimation of financial assets measured at Level 1 fair value is reliable,they are more manipulated by classification and derecognition.Financial assets measured at Level 2 are more manipulated by classification and fair value estimation.The degree of classification manipulation of financial assets measured at Level 2 fair value is lower than that of Level 1.The estimation manipulation of financial assets held for trading measured at Level 2 fair value is higher than that of Level 1,and is almost no difference from Level 3.Financial assets held for trading measured at Level 3 are more manipulated by estimation.In addition,for the purpose of increasing investors' trust,managers manipulate the derecognition of financial assets held for trading measured at Level 3 fair value.(2)After the implementation of Accounting Standards for Business Enterprises No.39,the degree of manipulating classification of financial assets has not decreased;the degree of manipulating estimation of financial assets held for trading measured at Level 2 fair value has decreased,mainly when managers plan to increase earnings;the degree of derecognition manipulation of available-for-sale financial assets measured at Level 1 fair value increases;the degree of derecognition manipulation of available-for-sale financial assets measured at Level 2 and Level 3 fair value and financial assets held for trading measured at Level 2 decrease.(3)In non-financial listed companies that pay more audit fees,the degree of classification manipulation of financial assets measured at Level 2 fair value and estimation manipulation of financial assets held for trading measured at Level 2 fair value are lower,but the reduction is not obvious;the degree of classification manipulation measured at Level 3 fair value and estimation manipulation of financial assets measured at Level 3 fair value are higher.The empirical results show that when auditors audit the financial assets measured at Level 2 fair value,the increase of audit cost and audit risk lead to an increase in audit fees.The premium effect of audit cost is more prominent than audit risk.When auditing financial assets measured at Level 3 fair value,the increase in audit fees is mainly due to the increase in audit risk.Based on conclusions,this paper believes that the disclosure of fair value hierarchy information can help financial report users to identify the financial information manipulation behavior.Investors should pay more attention to the differences in the methods and degree of information manipulation of financial assets measured at different levels of fair value;auditors should learn more about financial instruments,enhance the ability to audit financial assets and fair value information;standards agencies should pay more attention to the effect of the implementation of Accounting Standards for Business Enterprises No.22,which was revised in 2017,and try to enrich of the content of fair value auditing standards;accountants should acquire more knowledge about finance and asset valuation,managers can hire professional evaluators to participate in fair value estimation,which can improve the quality of fair value information.The main innovations of this paper are as follows: Firstly,this paper uses fair value hierarchy information to analyse financial assets information manipulation,providing a new research perspective for financial assets information manipulation.Secondly,the conclusions of this paper can provide evidence for the research of the existing research on fair value hierarchy information in China,expand research scope and research sample.Thirdly,from the perspective of information manipulation,this paper clarifies the inherent mechanism between fair value information and audit fees.