Mautz, who had served as a professor of accounting at the University of Illinois and partner in the accounting firm Ernst & Ernst (a predecessor to Ernst & Young) and finally a member of the Public Oversight Board and the Accounting Hall of Fame Mautz realized then that the goal was fair value accounting
and traveled the nation preaching that a revolution was being proposed.
Francis (1990) provides the most direct evidence about the impact of fair value accounting
compared to hedge accounting on earnings volatility.
* SFAS 157, Fair Value Measurements, 2006 (ASC 820), creates no new requirements for the use of fair value accounting
, but rather limits itself to the implementation and disclosure aspects of other standards that call for or permit the use of fair value as a measurement basis.
In this paper, we briefly discuss the role of fair value accounting
in the credit crisis, recent guidance issued by the FASB to improve fair value accounting
, and regulatory steps that have been taken to enable financial reporting to be more truthful and expedient.
In an essay written last year, "Fair Value Accounting
: A Critique," Peter Wallison of the American Enterprise Institute said that while bad underwriting practices, unwise borrowers, sloppy work by bond raters, inadequate bank supervision, and poor bank-management oversight had decimated values in the mortgage pools, the aggregated $500 billion of subprime mortgages shouldn't have caused a global crisis in financial markets worth $140 trillion.
Critics of fair value accounting
claim that enterprises marking financial assets down to fire-sale prices have resulted in the overstatement of loss and the understatement of capital for many financial institutions.
A recent statement by the GNAIE, the group of North American Insurance Enterprises, to the FASB, set squarely part of the blame for the worldwide credit crisis to fair value accounting
Key Words: IFRS; Fair value accounting
; Key performance indicators
Sir David added: "The beauty of fair value accounting
Fair value accounting
is also known as "mark-to-market" accounting.
Critics charge that so-called "mark-to-market" accounting -- also known as fair value accounting
-- has forced banks to write down billions of dollars in assets that are considered nearly worthless in a frozen market.
As per the fair value accounting
norm, such unrealised appreciation in the portfolio was booked as a profit.