“Whoa! It’s like Spotify but for academic articles.”

Instant Access to Thousands of Journals for just $40/month

Fair Value Accounting is the Wrong Scapegoat for this Crisis

The ongoing financial crisis has spurred much finger-pointing at fair value accounting for financial instruments, as set out in both leading sets of accounting standards used by listed companies around the world, namely the US Generally Accepted Accounting Principles (US GAAP) and the International Financial Reporting Standards (IFRS). Prominent financial leaders such as Martin Sullivan, former CEO of AIG, and Henri de Castries, CEO of AXA, have singled out fair value and the related wide use of mark-to-market accounting as a major factor in the crisis (see Hughes and Tett, 2008 ). Echoing these views, European Commissioner Charlie McCreevy expressed his concern on 1 April this year about the 'impact of mark to market valuation when markets generally become illiquid and irrational' (McCreevy, 2008 ). On closer inspection, there is not just one criticism of fair value accounting, but two, centring respectively on illiquidity and procyclicality. The illiquidity criticism focuses on complex products resulting from securitisation of assets such as mortgage loans, which are at the core of the current financial crisis. Both IFRS and US GAAP define the fair value of financial instruments under a three-level framework: it is set as the observable market price of the http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting in Europe Informa Healthcare

Fair Value Accounting is the Wrong Scapegoat for this Crisis

Abstract

The ongoing financial crisis has spurred much finger-pointing at fair value accounting for financial instruments, as set out in both leading sets of accounting standards used by listed companies around the world, namely the US Generally Accepted Accounting Principles (US GAAP) and the International Financial Reporting Standards (IFRS). Prominent financial leaders such as Martin Sullivan, former CEO of AIG, and Henri de Castries, CEO of AXA, have singled out fair value and the related wide use of mark-to-market accounting as a major factor in the crisis (see Hughes and Tett, 2008 ). Echoing these views, European Commissioner Charlie McCreevy expressed his concern on 1 April this year about the 'impact of mark to market valuation when markets generally become illiquid and irrational' (McCreevy, 2008 ). On closer inspection, there is not just one criticism of fair value accounting, but two, centring respectively on illiquidity and procyclicality. The illiquidity criticism focuses on complex products resulting from securitisation of assets such as mortgage loans, which are at the core of the current financial crisis. Both IFRS and US GAAP define the fair value of financial instruments under a three-level framework: it is set as the observable market price of the
Loading next page...
 
/lp/informa-healthcare/fair-value-accounting-is-the-wrong-scapegoat-for-this-crisis-lthuUofNA6

Sorry, we don’t have permission to share this article on DeepDyve,
but here are related articles that you can start reading right now:

Explore the DeepDyve Library

How DeepDyve Works

Spend time researching, not time worrying you’re buying articles that might not be useful.

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from Springer, Elsevier, Nature, IEEE, Wiley-Blackwell and more.

All the latest content is available, no embargo periods.

See the journals in your area

Simple and Affordable Pricing

14-day free trial. Cancel anytime, with a 30-day money-back guarantee.

Monthly Plan

  • Read unlimited articles
  • Personalized recommendations
  • Print 20 pages per month
  • 20% off on PDF purchases
  • Organize your research
  • Get updates on your journals and topic searches

$40/month

Best Deal — 25% off

Annual Plan

  • All the features of the Professional Plan, but for 25% off!
  • For the normal price of 10 articles elsewhere, you get one full year of unlimited access to articles.

$30/month
billed annually