The Crisis of Fair Value Accounting: Making Sense of the Recent Debate
Chicago Booth Research Paper No. 33
Accounting, Organizations and Society, Vol. 34, 2009
28 Pages Posted: 21 Apr 2009
Date Written: April, 21 2009
Abstract
The recent financial crisis has led to a vigorous debate about the pros and cons of fair-value accounting (FVA). This debate presents a major challenge for FVA going forward and standard setters’ push to extend FVA into other areas. In this article, we highlight four important issues as an attempt to make sense of the debate. First, much of the controversy results from confusion about what is new and different about FVA. Second, while there are legitimate concerns about marking to market (or pure FVA) in times of financial crisis, it is less clear that these problems apply to FVA as stipulated by the accounting standards, be it IFRS or U.S. GAAP. Third, historical cost accounting (HCA) is unlikely to be the remedy. There are a number of concerns about HCA as well and these problems could be larger than those with FVA. Fourth, although it is difficult to fault the FVA standards per se, implementation issues are a potential concern, especially with respect to litigation. Finally, we identify several avenues for future research.
Keywords: Mark-to-market, Fair value accounting, Financial institutions, Liquidity, Financial crisis, Banks, Procyclicality
JEL Classification: G14, G15, G30, K22, M41, M49
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Marking to Market: Panacea or Pandora's Box?
By Guillaume Plantin, Haresh Sapra, ...
-
Mark-to-Market Accounting and Liquidity Pricing
By Franklin Allen and Elena Carletti
-
Did Fair-Value Accounting Contribute to the Financial Crisis?
By Christian Laux and Christian Leuz
-
Did Fair-Value Accounting Contribute to the Financial Crisis?
By Christian Laux and Christian Leuz
-
By Weitzu Chen, Chi-chun Liu, ...
-
By Chang Joon Song, Wayne B. Thomas, ...
-
Fair Value Accounting and Financial Stability
By Andrea Enria, Lorenzo Cappiello, ...
-
Do Investors Perceive Marking-to-Model as Marking-to-Myth? Early Evidence from FAS 157 Disclosure
-
Bank Valuation and Regulatory Forbearance During a Financial Crisis
By Harry Huizinga and Luc Laeven