Get access

Assessing the Impact of Fair-Value Accounting on Financial Statement Analysis: A Data Envelopment Analysis Approach


  • The opinions and views expressed in this paper reflect those of the authors and do not necessarily reflect those of the institutions with which they are affiliated.

  • This paper has received financial support from Research Projects ECO2010-18967 (Ministerio de Educación e Innovación), 2009SGR-976 (Agència de Gestió d'Ajuts Universitaris i de Recerca) and EME2007-10 (Universitat Autònoma de Barcelona).

Gonzalo Rodríguez-Pérez ( is an Assistant Professor, John Slof ( and Magda Solà ( are Associate Professors, and Immaculada Vilardell ( is a Full Professor, all in the Department of Business Economics of the Universitat Autònoma de Barcelona. Margarita Torrent ( is a Financial Inspector responsible for Insurance Entities at the Catalonian Ministry of Economy and Finance.


The historical-cost and prudence principles have guided accounting for financial investments and tangible fixed assets in many jurisdictions around the globe. This situation might change as a consequence of the increasing number of countries adopting International Financial Reporting Standards (IFRS), which, to some extent, permit accounting on a fair-value basis. It is unclear how such a change would affect the analysis of financial statements and to what extent it could modify analysts' perceptions of companies' condition and performance. This paper attempts to shed some light on this issue by restating the financial investments and tangible fixed assets of a sample of 85 Spanish insurance companies, applying fair value instead of historical-cost-based valuations and by simulating analyst perception of these companies' efficiency and profitability for both sets of data using data envelopment analysis (DEA). We find that the numbers on the face of the financial statements change considerably and observe that the magnitude of these changes varies between companies and classes of assets. However, only in a few cases does a change in the valuation basis lead to a relevant change in DEA scores; within our sample, the overall assessment of companies with regard to efficiency and profitability remains largely the same under both valuation bases. These findings seem to indicate that a change from historical-cost to fair-value accounting could alter analyst perceptions of a limited number of companies but likely will not have a major impact on the appraisal of the majority of them.