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The Role of Fair Value Measurement in the Recent Financial Crunch

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  • David Procházka

Abstract

Fair value measurement became pervasive to financial reporting over last 20 years. Under fair value accounting, entities are obliged or permitted to measure particular assets and liabilities at their fair values as at the reporting dates. Fair value is a current market-based hypothetical value. This market value is not always directly observable. The debate on usefulness of fair value accounting has arisen in connection with the financial crunch and economic crisis in years 2007-2009. The opponents of fair value accounting insist on that financial reporting based on fair value measurement has accelerated the financial crisis and significantly worsened the impact on affected companies. On the other hand, there are several important opinions in favour of fair value accounting. The paper aim is to contribute to the actual debate whether fair value accounting played the role of a messenger or a mover in the recent financial crunch and subsequent economic recession and to analyse the characteristics of fair value accounting from the economic point of view.

Suggested Citation

  • David Procházka, 2011. "The Role of Fair Value Measurement in the Recent Financial Crunch," Prague Economic Papers, Prague University of Economics and Business, vol. 2011(1), pages 71-88.
    • Handle: RePEc:prg:jnlpep:v:2011:y:2011:i:1:id:388:p:71-88
    DOI: 10.18267/j.pep.388
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    References listed on IDEAS

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    12. repec:aei:rpaper:30923 is not listed on IDEAS
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    Cited by:

    1. Piosik Andrzej & Strojek-Filus Marzena, 2013. "An Assessment of the Application of Earnings Management Objectives and Instruments in Financial Reporting – Evidence of Survey Research Results," Scientific Annals of Economics and Business, Sciendo, vol. 60(2), pages 1-26, December.
    2. Krzysztof Drachal, 2014. "Is There a Feedback Mechanism in Accounting?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2014(1), pages 85-95.
    3. Loay Salem Mohammad Al-Rahamneh, 2018. "Is Fair Value Accounting an Appropriate Measure of Today's Financial Instruments as more Firms Follow (IFRS)," Journal of Social Sciences (COES&RJ-JSS), , vol. 7(4), pages 260-276, October.

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    More about this item

    Keywords

    measurement; fair value; economic income; accounting income;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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