A Study on the Correlation between Fair Value Hierarchy and Accounting Information Risk

Abstract

In the context of the internationalization of fair value standards, the Ministry of Finance of China issued the Accounting Standards for Business Enterprises CAS39 in 2014, which clearly requires enterprises to measure and disclose assets or liabilities measured at fair value at three levels, and stipulates the scope of application, order of use and disclosure principles to enterprises. Among the numerous accounting information disclosed by the enterprises in capital market, investors prefer to take assets or liabilities measured at fair value into consideration. However, due to differences such as information sources, application conditions, valuation techniques and disclosure scope at different levels of fair value,  investors inevitably face different levels of information risk when processing three levels of asset or liability information measured at fair value. By reviewing the relevant papers, concluding the research contents and methods, this paper intends to summarize the development and connotation of the three levels of fair value and the impact path on accounting information risk: first, with information providers have the discretion to improve level by level, the space for earnings manipulation has gradually become larger; Second, the incompleteness of hierarchical disclosure increases the information processing cost of statement users and the difficulty of analyzing the company's situation. This paper aims to help information users identify and evaluate the information risks of fair value measurement so as to make appropriate investment decisions.