Fair-Value Accounting and Financial Statement Analysis in Thai Insurance Companies

Abstract

Historical cost basis has been a fundamental tenet of accounting for assets and liabilities in many countries.  Historical costs are normally perceived as more reliable. On the other hand, fair value accounting provides more relevant information to the stakeholders like shareholders, prospective investors and creditors. As more and more countries are harmonizing their Accounting standards with that of International Financial Reporting Standards (IFRS) prepared by IASB, the use of fair value accounting is gaining popularity. This paper addresses whether a change from historical cost to the fair value method affects financial statement analysis. Data Envelopment Analysis (DEA) has been performed, on key financial statement items. Then, the results based on fair-value have been compared with that of the historical cost basis for ten (10) Thai insurance Companies (Public Companies Limited). The findings report the change in efficiency scores of these Thai insurance companies and whether the relative efficiency to each other altered when they shift from historical cost to the fair value basis.