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Fair Value Accounting: The Road to Be Most Travelled

  • Rock Lefebvre


    (Certified General Accountants Association of Canada)

  • Elena Simonova


    (Certified General Accountants Association of Canada)

  • Mihaela Scarlat

    (Certified General Accountants Association of Canada)

Registered author(s):

    Fair value convention has polarized two opposing views – the first, that fair value accounting compounds economic hardship and distortion – and the second, that fair value accounting affords an accurate rendering of the market value of underlying assets and liabilities. This paper intends to clarify some of the underlying arguments by presenting a brief overview of fair value accounting, and the main advantages and disadvantages of using fair value regime. The analysis shows that only certain assets and liabilities are required to be measured at fair value and the degree to which unrealized gains and losses associated with fair value measurement are reflected in the financial statements depends on the intended use of assets and liabilities in question. The two main arguments against fair value accounting – exacerbated procyclicality and increased volatility of the financial statements – are amply counterbalanced by arguments in favour of fair value accounting. The latter includes the significance of limitations associated with historical cost accounting, increased relevance of information presented to investors and lower expected likelihood of earnings management under fair value accounting.

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    File Function: First version, 2009
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    Paper provided by Certified General Accountants Association of Canada in its series Working Papers with number 091205.

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    Length: 22 pages
    Date of creation: Dec 2009
    Date of revision:
    Handle: RePEc:cga:wpaper:091205
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