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The Role of Fair Value Accounting (FVA) in the Financial Crisis

In: Fair Value Accounting: Key Issues Arising from the Financial Crisis

Author

Listed:
  • Elisa Menicucci

    (Polytechnic University of Marche)

Abstract

FVA has been criticized for its role in the GFC. During the crisis, the events have proved that while markets are illiquid, financial statements can portray a state that does not reflect the intrinsic economic and financial fundamentals of a company due to FVA. In particular, the financial crisis has shed light on the consequences of fair value measurement in distressed markets and specifically on two key aspects regarding the concept of fair value: volatility and pro-cyclicality. The first strong opposition to fair value is that market values for assets and liabilities risk encouraging too much volatility in the markets under FVA. The second severe criticism is that it can persuade a pro-cyclical stress in asset prices.

Suggested Citation

  • Elisa Menicucci, 2015. "The Role of Fair Value Accounting (FVA) in the Financial Crisis," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Fair Value Accounting: Key Issues Arising from the Financial Crisis, chapter 3, pages 55-79, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-1-137-44826-2_3
    DOI: 10.1057/9781137448262_3
    as

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