What role has fair value accounting played in the global financial downturn?
Fair value accounting has been positioned as a scapegoat in the global financial downturn. It is argued that using fair value methodologies to value illiquid assets, such as mortgage-backed securities made up of a large number of defaulted loans, has created the unrest that now permeates financial markets. The argument is that because under fair value rules, banks were required to immediately recognise losses on assets such as mortgage backed securities. This wiped billions of dollars from bank balance sheets that would not have occurred unless fair value accounting had been introduced. What’s likely to happen? At the moment, Dr. Mark Shying, Senior Policy Adviser with accounting body CPA Australia, says the U.S. accounting standard setter, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are doing joint work on fair value measurement. In particular, work is being done on fair value accounting when markets are illiquid. Shying says
Related Questions
- FASB has announced it will make changes to the fair value accounting standards in the next few weeks. Why didnt NCUA wait to see if those changes may have impacted the financial position of these corporate credit unions?
- What is a realistic timeframe for the implementation of fair value accounting or Solvency II?
- What role has fair value accounting played in the global financial downturn?
