The Impact of Fair Value Measurements on Comprehensive Income Representation under the Application of IAS/IFRSs in Italy

The requirement of applying International Financial Reporting Standards (IAS/IFRSs) for all EU listed companies starting from 2005, is causing some adapting issues since the International Accounting System is quite different from that of Continental countries, in particular Italy. The main difference is the much large reference to market valuation in IAS/IFRSs, above all referring to fair value criterion. Introduction of fair value will involve significant changes on financial representation in Italy. Drawn on this accounting innovation, this paper is intended to investigate the relationship between fair value measurement and income numbers, according to the features of the Italian accounting system. The first step is to pinpoint all the different measurement bases (replacement cost, net realizable value, value in use) adopted in IAS/IFRSs according to the dictates of each standard. Then, the focus will be on fair value accounting. For this purpose it will be analyzed a recent project (Fair Value Measurements) undertaken by the IASB, to provide an organic guidance on defining and measuring fair value. Furthermore, the impact of changes in fair value will be investigated since it could affect both income or equity, as arranged in each standard. This difference of treatment could lead to representation distortion so IASB is working, jointly with FASB, to include the Comprehensive Income representation in the Financial Statements to enhance the efficacy of the information in assessing firm performance. All this considerations will be reflected on the income statement, if a Comprehensive Income representation should be introduced, since it will move from the representation of the realised income towards the representation of different kinds of comprehensive income figures, depending on the related notion of capital maintenance. In fact, the bases adopted for income measurement will imply the size of capital to be maintained.