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Fair Value Accounting: Its Impacts on Financial Reporting and How It Can Be Enhanced to Provide More Clarity and Reliability of Information for Users of Financial Statements

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Fair Value Accounting: Its Impacts on Financial Reporting and How It Can Be Enhanced to Provide More Clarity and Reliability of Information for Users of Financial Statements
International Journal of Business and Social Science

Vol. 2 No. 20; November 2011

Fair Value Accounting: Its Impacts on Financial Reporting and How It Can Be Enhanced to Provide More Clarity and Reliability of Information for Users of Financial Statements
Ashford C. Chea School of Business, Kentucky Wesleyan College 4721 Covert Avenue, Evansville IN 47714 USA Abstract
The author begins the paper with a brief historical development of the Statement of Financial Accounting Standards (FAS 157) and its impact on fair value accounting. This is followed by the methodology employed in the research. Next, he reviews the literature on major issues in fair value accounting and financial reporting, and presents his findings from the study. The researcher ends the paper with recommendations to enhance the usefulness of fair value accounting and draws implications for financial reporting and users of financial statements.

Keywords: Fair Value, Measurement, Financial Instruments, Market
1. INTRODUCTION

In December of 2001, accounting standard-setters around the world published a consultation paper (Financial instruments and similar items) that proposes fundamental changes to the way financial instruments are reported in the accounts of companies. In particular, the paper proposes, inter alia, that all financial instruments should be measured at fair value. The banking sector has long argued that such an approach is not appropriate for banks and that, to the extent that there are weaknesses in the way that banks currently account for their financial instruments, those ills are better addressed through incremental, than fundamental , change (Ebling, 2001). The Financial Instruments Joint Working Party of standard setters (JWP) main proposal are that: (a) all types of entity should measure all their financial instruments at fair value, and should recognize all changes in those fair values immediately in the profit and loss account; (b) the fair value of an instrument


References: Allatt, G. (2001). Fair value accounting: Examining the consequences. Balance Sheet, 9, 22-26. Anonymous (2007). Statement of financial accounting standards No. 159: The fair value option for financial assets and financial liabilities. Journal of Accountancy, 203, 96-101. Anonymous (2002). Financial instruments: Fair values and disclosure. Balance Sheet, 10, 12-20. Bath, M. (2006). Including estimates of the future in today’s financial statements. Accounting Horizon, 20, 271-286. Barth, M. & Landsman, W. ( December, 1995). Fundamental issues related to using fair value accounting for financial reporting. Accounting Horizons, 97-107. Bies, S. S. (2005). Fair value accounting. Federal Reserve Bulletin, 91, 26-30. Casabona, P. & Shoaf, V. (2010). Fair value accounting and the credit crisis. Review of Business, 30, 19-31. Chambers, A. ( March, 2008). How do you mark to market? Euromoney, 1-3 Ebling, P. (2001). Fair value accounting: Breaking a butterfly upon a wheel? Balance Sheet, 9, 22-27. Elifoglu, I. H., Fitzsimons, A. P., & Lange, G. A. (2010). FASB proposal clarifies fair value measurement and disclosure. Commercial Lending Review, 75, 42-48. Hague, I. (2001). Fair debate for fair value. CA Magazine, 134, 47-49. Hague, I. (2002). Fair value for financial instruments: Where to next? Balance Sheet, 10, 8-12. Lipe, R. (2002). Fair value debt turns deteriorating credit quality into positive signals for Boston Chicken. Accounting Horizons, 17, 169-181. Metzger, L. (2010). Mark to market governments. The Journal of Government Financial Management, 59, 16-20. Poon, W. W. (2004). Using fair value accounting for financial instruments. American Business Review, 22, 39-44. Power, M. (2010). Fair value accounting, financial economics and the transformation of reliability. Accounting and Business Research, 40, 197-211. Ryan et al. (2002). Reporting fair value interest and value changes on financial instruments. Accounting Horizons, 16, 259-268. Schneider, D. K. & McCarthy, M. G. (2007). Fair value accounting broadened with FAS-159. Commercial Lending Review, 45, 28-36. Sinnett, W. M. (2007). New fair value standards stress HOW not just WHAT. Financial Executive, 23, 33-36. Wallison, P. J. (2009). Fixing fair value accounting. OECD Journal on Budgeting, 9, 99-105. Yonetani, T. & Katsuo, Y. (1998). Fair value accounting and regulatory capital requirements. Economic Policy Review, 4, 33-44. Zion, D., Varshney, A. & Cornett, C. ( June, 2009). Focusing on fair value. Credit Suisse Equity Research, 4, 18-20. 19 Copyright of International Journal of Business & Social Science is the property of Centre for Promoting Ideas and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder 's express written permission. However, users may print, download, or email articles for individual use.
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