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Influence of the Expansion of Fair Valuation on the Contracting Role of Accounting: A Normative Study


  • Yoshihiro Tokuga

    (Dean, Graduate School of Management, Kyoto University and Professor, Graduate School of Economics, Kyoto University (Email:

  • Yoko Ota

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:


This paper examines the ways of providing information that will enhance the valuation role of accounting while not creating significant problems for its contracting role. Until the global financial crisis beginning in 2008, the accounting standards setters have gradually expanded the scope of fair value accounting. We examine the impact of the expansion of fair valuation on the use of accounting in contracts (private contracts and public regulations) and derive some hypothetical conclusions. First, there will be no significant problems in the contracting role of accounting, if information in the body of financial statements used directly in contracts is able to be revised and adjusted in a way that eliminates unrealized profit and valuation profit or loss with room for management estimation and discretion. Second, if one uses the standard of differences in business models to distinguish, from the perspective of the valuation role, between assets and liabilities subject to fair value measurement and assets and liabilities subject to cost-based measurement, there is considerable overlap between information that plays the valuation role and information that plays the contracting role. Finally, it is also found desirable that risk information, corporate governance information, and other similar information that is useful in contracts but has low verifiability be provided in the form of footnote information, etc. that supplements and complements information in the body of financial statements.

Suggested Citation

  • Yoshihiro Tokuga & Yoko Ota, 2013. "Influence of the Expansion of Fair Valuation on the Contracting Role of Accounting: A Normative Study," IMES Discussion Paper Series 13-E-11, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:13-e-11

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    fair value; valuation role; contracting role; executive compensation; financial covenants; dividend restrictions; financial regulation and supervision;

    JEL classification:

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

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