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Current Issues Financial Accounting

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Current Issues Financial Accounting

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  • Feb. 2011
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Critical analysis

Article descriptions

The journal article named “The crisis of fair-value accounting: Making sense of the recent debate” is written by Christian Laux and Christian Leuz in Accounting and Organisations and Society journal (2009). Mr Laux works as a professor of finance at the Goethe University in Frankurt and his research has been published in many journals. Mr Leuz works as a professor of International Economics at University of Chicago Booth School of Business. He has done a lot of research and published his findings in several journals while acquiring many several grants and honours. Both authors have an immense amount of experience and qualifications in the area of accounting. The accounting topics that are covered in this article are financial instruments and recognition, relevance, reliability and measurement.

Objective of the article

The recent financial crisis has led to a vigorous debate about the pro and cons of fair value accounting (FVA), and this debate presents a major challenge for FVA going forward, Christian Laux and Christian Leuz has written ‘The crisis of air value accounting: Making sense of the recent debate.” The authors have evaluated the critics’ arguments that FVA has considerably contributed to the financial crisis and intensified its severity for financial institutions around the world. Also proponent’s views that FVA merely played the role of the proverbial messenger.

This article’s objectives are to make sense of the current fair value debate and discuss whether many of the arguments in this debate hold up to further scrutiny.

The authors have achieved their objectives by explaining what FVA is and discussing the key arguments for and against FVA. It also considers what’s new and what’s different about FVA as the authors believes confusion about this adds to the debate and non use of FVA. They further discuss the pros and cons of historical cost accounting as an alternative to FVA and discuss...