Abstract

http://ssrn.com/abstract=1981201
 
 

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Accounting Choice and the Fair Value Option


Katherine Guthrie


College of William and Mary - Mason School of Business

James H. Irving


Clemson University

Jan Sokolowsky


Independent

2011

Accounting Horizons, Vol. 25, No. 3, pp. 487-510, 2011

Abstract:     
Under the fair value option, SFAS No. 159, firms have full discretion over electing to report specified financial instruments at fair value on a contract-by-contract basis. Building on Henry's (2009) study of early adopting banks, this paper examines to what extent firms' election of instruments benefited their current or future earnings. Our sample comprises the constituents of the S&P 1500 Index for the first quarters of fiscal years 2007 and 2008. Expanding the sample across industries and over time allows us to obtain a more complete picture of the adoption of the fair value option. We identify 72 adopters, two-thirds of which are not commercial banks. We do not find evidence of systematic opportunistic election of the fair value option. In only a handful of cases, concentrated among early adopters with an earnings shortfall, did firms experience a significant improvement in current or future earnings that casts doubt on whether their adoption was keeping with the intent and spirit of the standard.

Keywords: SFAS 159, fair value option, fair value, mark-to-market, accounting choice, Accounting Standards Codification Topic 825

JEL Classification: M41

Accepted Paper Series





Not Available For Download

Date posted: January 7, 2012  

Suggested Citation

Guthrie, Katherine and Irving, James H. and Sokolowsky, Jan, Accounting Choice and the Fair Value Option (2011). Accounting Horizons, Vol. 25, No. 3, pp. 487-510, 2011. Available at SSRN: http://ssrn.com/abstract=1981201

Contact Information

Katherine Guthrie
College of William and Mary - Mason School of Business ( email )
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
7572212832 (Phone)
James H. Irving (Contact Author)
Clemson University ( email )
College of Business and Behavioral Science
Clemson, SC 29634
United States
Jan Sokolowsky
Independent ( email )
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