FAIR VALUE REPORTING
Contents
Introduction
Fair Value Background
Advantages of Fair Value
Disadvantages of Fair Value
The debate on Financial Stability
Conclusion
References
Introduction
Society’s major concern is the recent financial crisis which had an unprecedented impact and dire consequences on the global economy and the current economic regulations around the world. The beginning of the economic paradigm change was the major collapse of previously leading financial institutions such as Wachovia, Bear Stearns, Merrill Lynch and Lehman Brothers followed by the almost immediate collapse of the global economy and the paralysis of the financial market. This negative event has the direst and the most severe global economic consequences the world has seen after the end of the Second World War.
The severity of this crisis has determined worldwide efforts for the financial authorities to identify solutions and future possible drawbacks and deal with them. Many researchers believe that the starting point of the financial crisis was the bursting of the US housing bubble, but this was never unquestionable proven since it is a multidimensional and complex event to begin with. Other significant factors proven that have a major impact for this crisis are the excessive risk-taking of managers due to high potential profit and their excessive leverage due to their compensation being directly depended on these profits, the loan availability which was easily accessible to people in already developed countries and the connection between the house-buying activity and the mortgage activity, especially in countries such as U.S. or the United Kingdom.
Fair Value Background
The events and the cause of this global economic crisis are the reasons why the use of the fair value accounting has been the center of financial research for the last decade. IAS 16 Accounting for property, plant and equipment (1982) was the first to introduce the “fair value”
Introduction
Fair Value Background
Advantages of Fair Value
Disadvantages of Fair Value
The debate on Financial Stability
Conclusion
References
Introduction
Society’s major concern is the recent financial crisis which had an unprecedented impact and dire consequences on the global economy and the current economic regulations around the world. The beginning of the economic paradigm change was the major collapse of previously leading financial institutions such as Wachovia, Bear Stearns, Merrill Lynch and Lehman Brothers followed by the almost immediate collapse of the global economy and the paralysis of the financial market. This negative event has the direst and the most severe global economic consequences the world has seen after the end of the Second World War.
The severity of this crisis has determined worldwide efforts for the financial authorities to identify solutions and future possible drawbacks and deal with them. Many researchers believe that the starting point of the financial crisis was the bursting of the US housing bubble, but this was never unquestionable proven since it is a multidimensional and complex event to begin with. Other significant factors proven that have a major impact for this crisis are the excessive risk-taking of managers due to high potential profit and their excessive leverage due to their compensation being directly depended on these profits, the loan availability which was easily accessible to people in already developed countries and the connection between the house-buying activity and the mortgage activity, especially in countries such as U.S. or the United Kingdom.
Fair Value Background
The events and the cause of this global economic crisis are the reasons why the use of the fair value accounting has been the center of financial research for the last decade. IAS 16 Accounting for property, plant and equipment (1982) was the first to introduce the “fair value”
References: ACCA, (2009). ACCA Fair Value News Release. [Online] Available at: http://accacourses.com.ua/index.php/sefularticles/28-acca-fair-value-news-release Barlev, B Barth, M. & Taylor, D. (2010). In Defense Of Fail Value: Weighing The Evidence On Earnings Management And Asset Securitizations. Journal of Accounting and Economics, Volume 49, pp. 26-33. Benston, G.J Boyson, Nicole, Christoff Stahel, and Rene Stulz. (2010). Hedge Fund Contagion and Liquidity Shocks. Journal of Finance 65, no. 5 p. 1789-1816. Bradbury, M. (2008). Discussion of Whittington. Abacus, 44(2): 169-80. (Note: this is a discussion of the Whittington paper listed below). Bromwich, M. (2007). Fair values: imaginary prices and mystical markets – a clarificatory review in P. Walton (ed) The Routledge Companion to Fair Value and Financial Reporting, London: Routledge, pp. 46-67. Brunnermeier, Markus K., and Lasse H Cairns, D. (2006). The Use of Fair Value in IFRS. Accounting in Europe, 3: 5-22. Chea, A Daske, H., L. Hail, C. Leuz and R. Verdi. (2008). Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences. Journal of Accounting Research, 46, pp. 1085-1142. Dunn, J. (2010). Financial Reporting and Analysis. s. l.: John Wiley and Sons Ltd Publication. Eccher, E Financial Stability Oversight Council. (2012b). Annual Report. Washington, D.C.: FSOC. Financial Stability Oversight Council. (2012a). Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies. Final Rule and Interpretive Guidance, Federal Register 77, no. 70, April 11. Washington, D.C.: FSOC, 21637-21662. Gwilliam, D. and Jackson, RHG. (2008). Fair value in financial reporting: Problems and pitfalls in practice: A case study analysis of the use of fair valuation at Enron. Accounting Forum, 32(3): 240-59. Hague, I.P.N Herz, R. (2003). Questions of value: is fair-value accounting the best way to measure a company?The debate heats up. CFO Magazine Knowledge@SMU Lauxa, C. and Leuz, C. (2009). The crisis of fair-value accounting: Making sense of the recent debate. Accounting, Organizations and Society, 34(6-7): 826-34. Lee, TA Michael, I. (2004). Accounting and fi nancial stability. Financial Stability Review, Bank of England, June, 118-128 Parrino, R., Kidwell, D., Bates, T.W Penman, SH. (2007). Financial reporting quality: Is fair value a plus or a minus?. Accounting and Business Research, Special Issue: International Accounting Policy Forum, pp. 33-44. Power, M Ronen, J. (2008). To Fair Value or not to Fair Value: A broader perspective. Abacus, 44(2) 181-208. Veron, N Veron, N. (2008). Fair Value Accounting Is The Wrong Scapegoat For The Crisis. Accounting In Europe, 5(2), pp. 63-9. Whittington, G. (2008). Fair Value and the IASB/FASB Conceptual Framework: An alternative view. Abacus, 44(2) 139-68. Woods, M. (2004). Fair value accounting, ACCA.