Fair Value Accounting (eBook)

Elisa Menicucci obtained degrees in economics and business administration, and economics and management, from the University of Ancona and the Polytechnic University of Marche respectively, in Ancona, Italy. She went on to complete a PhD in business administration from the Polytechnic University of Marche in 2009. Elisa Menicucci works as temporary professor in business administration at the Polytechnic University of Marche, and as teaching expert in business valuation at Uninettuno University in Rome, Italy. She has participated in the International Commission of OIC (Organismo Italiano di Contabilità) and has worked as a chartered accountant and tax auditor since 2008.

Cover 1
Title 4
Copyright 5
Contents 6
Preface 8
1 Financial Crisis and Fair Value Accounting (FVA) 10
1.1 Introduction 11
1.2 Background information about the financial crisis 13
1.3 Features of the financial crisis 14
1.3.1 Features of the financial crisis and FVA 17
1.4 The debate on the role of FVA in the financial crisis 17
1.4.1 Studies on FVA in the financial crisis 20
1.5 Concluding remarks 22
2 Fair Value Accounting (FVA): An Overview of Key Issues 26
2.1 Introduction 27
2.2 Fair value in contemporary accounting standards 28
2.3 Theoretical foundations underlying FVA 32
2.4 Definition of fair value 34
2.5 The use of FVA: fair value hierarchy 38
2.5.1 Fair value hierarchy in US GAAP 39
2.5.2 Fair value hierarchy in IAS/IFRS 42
2.6 The use of fair value in IAS/IFRS 48
2.6.1 Fair value measurement for financial instruments 51
2.7 Historical cost accounting (HCA) 55
2.8 FVA versus HCA 57
2.8.1 FVA versus HCA within a financial crisis 59
2.9 Concluding remarks 60
3 The Role of Fair Value Accounting (FVA) in the Financial Crisis 64
3.1 Introduction 65
3.2 FVA and implications in the financial crisis 66
3.3 Fair value in normal economic conditions 69
3.3.1 Relevance versus reliability 73
3.4 Fair value in financial crisis conditions 76
3.4.1 Criticisms of fair value 79
3.5 Key observations on fair value arising from the financial crisis: volatility and pro-cyclicality 82
3.5.1 Fair value and volatility 82
3.5.2 Fair value and pro-cyclicality 84
3.6 Concluding remarks 86
4 Fair Value Accounting (FVA) in the Banking Sector 89
4.1 Introduction 90
4.2 The impact of FVA on banks’ financial statements 91
4.2.1 FVA and increased volatility of information in financial statement 93
4.3 FVA and volatility in earnings and regulatory capital 97
4.4 FVA and financial stability 105
4.5 Practical implications and perspectives for FVA 109
4.6 Lessons from the financial crisis 112
4.7 Concluding remarks 115
Bibliography 118
Index 127