The usefulness of fair values in improving the predictive ability of earnings: Evidence from international banks

One of the objectives of general-purpose financial reporting is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. The current focus on potentially increased relevance of fair value accounting weighed against issues of reliability has failed to consider the potential impact on the predictive ability of accounting. Based on a sample of international (non-U.S.) banks from 24 countries during 2009-2012, we test the usefulness of fair values in improving the predictive ability of earnings. First, we find that the increasing use of fair values on balance-sheet financial instruments enhances the ability of current earnings to predict future earnings and cash flows. Second, we provide evidence that the fair value hierarchy classification choices affect the ability of earnings to predict future cash flows and future earnings. More precisely, we find that the non-discretionary fair value component (Level 1 assets) improves the predictability of current earnings whereas the discretionary fair value components (Level 2 and Level 3 assets) weaken the predictive power of earnings. Third, we find a consistent and strong association between factors reflecting country-wide institutional structures and predictive power of fair values based on discretionary measurement inputs (Level 2 and Level 3 assets and liabilities). Our study is timely and relevant. The findings have important implications for standard setters and contribute to the debate on the use of fair value accounting.

A generic individual-based spatially explicit model as a novel tool for investigating insect-plant interactions: A case study of the behavioural ecology of frugivorous Tephritidae

Computational modelling of mechanisms underlying processes in the real world can be of great value in understanding complex biological behaviours. Uptake in general biology and ecology has been rapid. However, it often requires specific data sets that are overly costly in time and resources to collect. The aim of the current study was to test whether a generic behavioural ecology model constructed using published data could give realistic outputs for individual species. An individual-based model was developed using the Pattern-Oriented Modelling (POM) strategy and protocol, based on behavioural rules associated with insect movement choices. Frugivorous Tephritidae (fruit flies) were chosen because of economic significance in global agriculture and the multiple published data sets available for a range of species. The Queensland fruit fly (Qfly), Bactrocera tryoni, was identified as a suitable individual species for testing. Plant canopies with modified architecture were used to run predictive simulations. A field study was then conducted to validate our model predictions on how plant architecture affects fruit flies’ behaviours. Characteristics of plant architecture such as different shapes, e.g., closed-canopy and vase-shaped, affected fly movement patterns and time spent on host fruit. The number of visits to host fruit also differed between the edge and centre in closed-canopy plants. Compared to plant architecture, host fruit has less contribution to effects on flies’ movement patterns. The results from this model, combined with our field study and published empirical data suggest that placing fly traps in the upper canopy at the edge should work best. Such a modelling approach allows rapid testing of ideas about organismal interactions with environmental substrates in silico rather than in vivo, to generate new perspectives. Using published data provides a saving in time and resources. Adjustments for specific questions can be achieved by refinement of parameters based on targeted experiments.