The Fairness of Fair Value

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The Fairness of Fair Value: SFAS 157, Irving Fisher and GECON Paulo Roberto B. Lustosa Professor , University of Brasilia Abstract Fair value measurement is increasingly spreading in accounting standards. In February/2010, it was present in 61 FASB pronouncements. Such diffusion led to the issuance of SFAS 157 Fair Value Measurements, in which many prior definitions and measurement requirements, presented in other pronouncements, were replaced by a single standard on this subject. But the expansion of situations in which fair value measurement is required makes more difficult to ensure that the computed measure of value is actually fair. Out of the objectivity of current sales prices in an active market, all other measures of value are expectations about the future, inherently uncertain and inaccurate. Thus, the desired justice of the computed figures lies not in its accuracy, but in the using of the correct concepts for measuring accounting transactions and events. This article examines whether it is correct the fair value concept and measurement structure present in SFAS 157. For such, the characteristics of this principle are confronted with the secular concept of capital and income set by the laureate American neoclassical economist Irving Fisher, which were incorporated into GECON – Information System for Economic Management – a Brazilian managerial accounting model developed in the University of Sao Paulo by the now retired professor Armando Catelli. The results indicate that SFAS 157 fair value concept and measurement structure are incorrect or incomplete, suggesting that the maintenance of the fair value expression in accounting seems inadequate. 1. Introduction The extensive discussion of fair value accounting has intensified with the outbreak of the financial crisis that shook the world in the last quarter of 2008. In face of the billionaires accounting losses recognized by banks and other institutions in marking to market their subprime-backed

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