Limiting the Impact of Fair Value Accounting on Companies’ Capital

26 Pages Posted: 20 May 2010 Last revised: 10 Sep 2018

See all articles by Giovanni Strampelli

Giovanni Strampelli

Bocconi University - Department of Law

Date Written: May 19, 2010


The recent financial crisis has demonstrated that fair value accounting can affect not only the informational importance of annual accounts but also a company’s financial integrity. In legislations where standards of company law prompt companies to maintain minimum amounts of capital (or an equilibrium between assets and liabilities) the recording of unrealised losses may reduce a company’s share capital to a level below minimum thresholds. If fair value losses are transitory and do not reflect an actual lowering of a company’s assets’ value, fair value accounting may still prompt shareholders to consider an unnecessary recapitalisation or the “premature” dissolution of a firm. The negative consequences arising from interaction between fair value accounting and the legal capital rules can be prevented by neutralising (through appropriate rectifications of accounting numbers) fair value profits and losses for the sole purpose of respecting the provisions for share capital maintenance. This solution would make it possible to limit the impact of accounting rules on companies’ capital without prejudicing the informational importance of annual accounts.

Keywords: fair value, mark to market, legal capital, IAS/IFRS, capital maintenance

Suggested Citation

Strampelli, Giovanni, Limiting the Impact of Fair Value Accounting on Companies’ Capital (May 19, 2010). Bocconi Legal Studies Research Paper No. 1611537, European Company and Financial Law Review Vol. 8, No. 1, Available at SSRN: or

Giovanni Strampelli (Contact Author)

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136

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