PricewaterhouseCoopers decided to do some research to get a sense of what investors and analysts are really looking for in the way of accounting standards to make it easier for them to grasp what’s in corporate financial statements.

They focused on the question that is front-and-center in accounting standard setting these days—whether financial assets should be reported at fair value, amortized cost, or some combination of the two. The Financial Accounting Standards Board recently floated a proposal to require all financial instruments to be reported at fair value while the International Accounting Standards Board favors the combination approach, often referred to as a “mixed measurement” model.

PwC did some in-depth interviews of 62 investment professionals and found 87 percent agree that disclosures around financial instruments need some improvement. PwC said a majority of the respondents prefer a mixed measurement approach, using fair value for shorter-lived instruments, such as those that are available for sale, and amortized cost for longer-term instruments, such as bank loans and deposits.

According to the survey results, investors consider the amortized cost approach for longer-lived assets to better match a company’s business or economic reasons for having the instrument, especially if the company intends to hold the instrument for purposes of collecting the cash flows, such as loan payments and interest.

Matt Brockwell, a national partner for PwC, said the survey represents the firm’s effort to understand “in a deeper, more nuanced fashion the views and opinions of investment professionals and how they use financial instrument information that is presented in financial statements.” The survey gives a sense for how investors believe current accounting could be improved, he said.

Brockwell said a significant number of investment advisers are looking for better disclosures about how fair values are reached, including better information about the estimation process, the assumptions that are used, and the valuation methodologies employed.

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