Why Financial Knowledge of Valuation Methodologies is Crucial for Accounting Professions

Abstract

The main objective of this article is to highlight concerns about the importance of financial knowledge, specifically regarding valuation methodologies and present value measurement used in both Thai and international financial reporting standards. Since the Conceptual Framework for Financial Reporting allows companies to choose “current value measurement” as one of the techniques to arrive at a measure, it undeniably brings accounting much closer to finance than ever before. Regardless of the technical terms of current value measurement used in Thai Accounting Standards (TASs) or Thai Financial Reporting Standards (TFRSs)—such as fair value, value in use, or fulfilment value—the complexity of present value measurement techniques makes current value measurement difficult to understand and apply, especially for accountants or auditors who lack sufficient financial knowledge and experience with valuation methodologies.
This issue is exacerbated by the fact that most current accounting curricula in Thailand and other countries require only one finance subject, where concepts such as time value of money, present value measurement, central estimate of cash flows, and risk premium are only briefly covered. Although this financial knowledge might be revisited when specific TASs or TFRSs are taught, the limited time allocated to each accounting subject raises questions about the depth of understanding of these complex topics. To address this issue, if adding another finance subject focused on valuation methodologies is not feasible, it is suggested that all accounting programs should at least enhance the existing finance subject by: (a) discussing this problem with finance instructors and requesting them to devote sufficient time to topics related to value measurement, and (b) making accounting students aware of the importance of financial knowledge to the accounting profession, encouraging them to focus more on key concepts of valuation and present value measurement.
In conclusion, this paper emphasizes the close relationship between accounting and finance, and the critical importance of finance, especially for financial accounting. Given the increasing trend of current value measurement, it is imperative to provide prospective accounting professionals with sufficient financial knowledge. Improved understanding will empower accountants and auditors to handle the complexities of TASs and TFRSs involving current/fair value measurement, ultimately strengthening the reliability and faithful representation of companies’ financial statements and enhancing investment decision-making for investors and other financial statement users worldwide.