Accounting Choice and the Fair Value Option

Posted: 7 Jan 2012

See all articles by Katherine Guthrie

Katherine Guthrie

College of William and Mary - Mason School of Business

James H. Irving

James Madison University

Jan Sokolowsky


Multiple version iconThere are 2 versions of this paper

Date Written: 2011


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

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:

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)

James Madison University

United States

Jan Sokolowsky

Independent ( email )

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