Roekhudin, Aryo Prakoso
Purpose: This study examines the problems of applying fair value accounting (FVA) in Indonesia, which face complex challenges in professional judgment for fair value measurements, particularly due to institutional constraints and high dependence on subjective assessments involving Level 2 and Level 3 inputs. This study addresses the gap in previous research, which did not explore the influence of behavioral factors, power dynamics between report preparers and auditors, and the gap between global standards and local realities. Design/methodology/approach: This qualitative study draws on in-depth interviews an auditor, a corporate account-ant, and a quality assurance specialist, each with over five years of experience handling fair value measurements across all levels 1, 2, and 3. Data, analyzed using thematic analysis. Findings: This study reveals three critical findings. The first is systematic bias in professional judgment, where practi-tioners demonstrate cognitive biases such as anchoring and overconfidence in Level 2 and Level 3 valuations. The second is institutional pressures, where auditors and accountants face conflicts between objective measurement and client expectations. The third is implementation gaps, where current guidance inadequately addresses behavioral challenges in complex valuation judgments. Research limitations/implications: The findings of this study provide the first theoretical implication, as the research results directly contradict the objective measurement assumptions in IFRS 13, While our focus extends beyond listed companies to encompass various organizational contexts where FVA is applied, this provides broader insights into professional judgment across Indonesia's diverse corporate landscape which assumes fair value as an objective measure. In reality, Indonesia's Level 3 asset valuation process is dominated by various subjective interests, ranging from pressure to meet profit targets (earnings management), cognitive biases and behavioral fac-tors, to internal political considerations within the company. Second, these findings provide strong empirical evidence for the argument about the influence of emotions and cognitive biases in accounting valuation. Originality/value: This study makes three key contributions: First, it extends behavioral finance theory beyond capital markets to professional accounting judgment, demonstrating how cognitive biases systematically affect fair value measurements. Second, it provides first empirical evidence of behavioral factors in FVA implementation within Indonesia's institutional context. Third, it offers practical insights for improving professional judgment training and audit quality in emerging market settings. © The Author(s).
Department of Accounting, University of Brawijaya, Malang, Indonesia; Department of Administration Science, University of Jember, Jember, Indonesia
