Recent Trend of Present Value

2341 concepts efficiency, future, ex ante than accounting concepts a llocation, past, ex post. If we rely on economic opportunity, accounting allocation might be replaced by the fair value approach [Form 4]. In fact, as for a loan, the comprehensive fair value model is proposed to substitute catch-up method IASC Discussion Paper 1997; JWG Draft Standard 2000. Besides as for long-lived assets, the performance report project has been promoted in a form which is difficult to understand unless comprehensive fair value measurement revaluation for all accounts is assumed. The Matrix format of performance report issued by IASB 2002 is a typical example of such proposal. If such a tendency progresses, the concepts of cost, allocation, realization and matching must be retreated. The nominal capital maintenance will be replaced by a new capital maintenance, which assumes maintenance of economic opportunities and defines capital in terms of capacity to earn the current market rate of return. IASC Discussion Paper 1997, Chap. 6, paras. 2.4-2.7 2342 Moreover, SFAC No.7 FASB 2000, paras.43, 48, 117 calls the combination of an estimated cash flow and a rate commensurate with risk internal rate as the traditional present value, and combination of an expected cash flow and a risk-free rate external rate as the expected present value. The former is suitable for assets and liabilities with contractual cash flows such as a bond, and the latter is suitable for those without contractual cash flows such as pensions, other postretirement benefits, some insurance obligations, impaired long-lived assets, product warranty, postretirement health care and environmental remediation. The recent trend from the former toward the latter indicates the change of accounting figure from transaction-based hard figures toward statistical-based soft figures.

7. Present Value from Auditing Perspective

Present value oriented approach in recent years reveals other issues in terms of auditing. Basically, audit techniques rely upon material evidence which is listed on balance sheet. This seems that present value orientation which coupled with 2343 comprehensive income approach is good news for auditing, but of course, it is not true. The new approach introduces new assets which has value but not has physical materiality. This fact means that auditing must develop new tools for these equivocal assets but we cannot assert we have such dependable tools now. After the World War , Japanese audit practice and standards always has followed US one. This fact makes the Japanese auditing falling into ―minor‖ field, but such situation is now changing because many recently detected fraud cases highlighted the role of auditing. These audit circumstance are common in the world like Enron affair in the U.S. or BCCI, Barings and Palmalat cases in Europe. Apparently, in these cases, complicatedly produced new types of assets are related to the fraud, and audit decision was deluded in some cas es. From auditing viewpoint, traditional accounting concepts are still important and practical. When we will continue to introduce present value and the related accounting practice, the notion of them must be re-examined like four forms in this paper, and show the way to yield hard auditable amount of assets. In