Using Fair Value Earnings to Assess Firm Value
26 Pages Posted: 19 Jan 2018 Last revised: 27 Apr 2018
Date Written: April 1, 2018
Whether fair value accounting should be used in financial reporting has been the subject of debate for many years. A key dimension to this debate is whether fair value earnings can provide information to financial statement users that is helpful in making their economic decisions. A criticism of fair value accounting is the contention that fair value earnings simply reflects “shocks” to value, and thus cannot be used to assess firm value. We show how fair value earnings can be disaggregated into components that can be used to assess firm value, as well as components that provide information about various types to shocks to value, e.g., effects of changes in expected cash flows.
Keywords: Fair Value, Fair Value Earnings, Firm Value, IASB, FASB
JEL Classification: M41, G12
Suggested Citation: Suggested Citation