Some Aspects Regarding the Role of Fair Value Accounting During the Current Financial Crisis

2009 ◽  
Author(s):  
Maria Carmen Huian
Keyword(s):  
Financial Crisis ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Current Financial Crisis

Fair value accounting and the financial crisis: a literature-based analysis

2016 ◽  
Vol 14 (1) ◽  
pp. 49-71 ◽  
Author(s):  
Elisa Menicucci ◽  
Guido Paolucci
Keyword(s):  
Financial Crisis ◽  
Literature Review ◽  
Empirical Studies ◽  
Relevant Literature ◽  
Fair Value ◽  
Research Literature ◽  
Fair Value Accounting ◽  
Comprehensive Overview ◽  
Content Type

Purpose The aim of this paper is to review the main results of accounting research literature examining the role of fair value accounting (FVA) within financial crisis. This research analyzes theoretical and empirical studies on the controversial topic about FVA and its alleged pro-cyclicality in the context of the financial crisis to offer solid reflections for improving the fair value research agenda. Design/methodology/approach This paper consists of a descriptive literature review. Theoretical and empirical research studies were investigated and then systematized in a framework to guide a literature-based analysis and critique of the relevant literature published about this topic. Findings The review reveals that there has been only a limited amount of research into the role of FVA within the financial crisis. This topic has not been researched extensively, and there is no empirical evidence that FVA caused the financial crunch and the subsequent financial crisis. Research limitations/implications The restricted amount of literature that directly deals with FVA in the context of the financial crisis is the main limitation of this paper. The specificity of the theme narrows the coverage. However, the adopted research methodology enabled the main contributions concerning this issue to be collected, to realize a concise and comprehensive portrait of the debate surrounding FVA and the financial crisis. Practical implications This paper can be of use to both researchers and practitioners interested in investigating strengths and weaknesses of the fair value concept for accounting purposes. The paper sets out the main findings of the academic literature and identifies future avenues of theoretical and practical research which may support standard setters to draw up improved accounting regulation. Originality/value Few existing studies consist of a literature review that examines theoretical and empirical researches on the influence of FVA on the financial system. This review offers a comprehensive overview on research literature concerning the responsibility of FVA in causing the financial crisis. The main contribution of this paper relates to further understanding the role and effects of accounting matters concerning fair value in a broad sense within the context of the financial crisis.

scholarly journals The Role of Accounting in the Financial Crisis: Lessons for the Future

2012 ◽  
Vol 26 (2) ◽  
pp. 335-351 ◽  
Author(s):  
S. P. Kothari ◽  
Rebecca Lester
Keyword(s):  
Financial Crisis ◽  
Accounting Standards ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Management Incentives ◽  
The Great Recession ◽  
Incentive Structures ◽  
Bubble Rising ◽  
Perfect Storm

SYNOPSIS The advent of the Great Recession in 2008 was the culmination of a perfect storm of lax regulation, a growing housing bubble, rising popularity of derivatives instruments, and questionable banking practices. In addition to these causes, management incentives as well as certain U.S. accounting standards contributed to the financial crisis. We outline the significant effects of these incentive structures and the role of fair value accounting standards during the crisis, and discuss implications and relevance of these rules to practitioners, standard-setters, and academics.

scholarly journals Did Fair-Value Accounting Contribute to the Financial Crisis?

2010 ◽  
Vol 24 (1) ◽  
pp. 93-118 ◽  
Author(s):  
Christian Laux ◽  
Christian Leuz
Keyword(s):  
Financial Crisis ◽  
Empirical Evidence ◽  
Fair Value ◽  
Evidence Based ◽  
Fair Value Accounting ◽  
Descriptive Data ◽  
Fire Sales ◽  
The 2008 Financial Crisis ◽  
Recent Financial Crisis

The recent financial crisis has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity. In this paper, we assess these arguments and examine the role of fair-value accounting in the financial crisis using descriptive data and empirical evidence. Based on our analysis, it is unlikely that fair-value accounting added to the severity of the 2008 financial crisis in a major way. While there may have been downward spirals or asset-fire sales in certain markets, we find little evidence that these effects are the result of fair-value accounting. We also find little support for claims that fair-value accounting leads to excessive write-downs of banks' assets. If anything, empirical evidence to date points in the opposite direction, that is, toward the overvaluation of bank assets during the crisis.

The localised accounting environment in the implementation of fair value accounting in Indonesia

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bernadia Linggar Yekti Nugraheni ◽  
Lorne Stewart Cummings ◽  
Alan Kilgore
Keyword(s):  
Emerging Economies ◽  
Accounting Standards ◽  
Fair Value ◽  
Successful Implementation ◽  
Fair Value Accounting ◽  
Structured Interviews ◽  
Content Type ◽  
Emerging Country ◽  
Government Involvement

Purpose This case study aims to investigate the role of actors in the implementation of fair value standards in an emerging country, Indonesia. Design/methodology/approach This study uses semi-structured interviews with important actors within the local accounting profession, standard setting and regulatory environment, to analyse fair value accounting implementation. This study also incorporates information from press releases and newspapers, to provide a more comprehensive picture of fair value implementation. Findings First, professionals undertake routine actions, cultivate interests and strategically navigate their environment during the process of fair value standard implementation. Second, the role of appraisers becomes more prominent during this process. Third, government involvement is significant in ensuring the successful implementation of global accounting standards. Research limitations/implications First, differing localised contexts, including communities and actors, may shape how an emerging country undertakes the diffusion and implementation of global standards, which in turn can also lead to institutional change. Second, government involvement is crucial in supporting the implementation of global accounting standards within emerging economies. Third, implementing market-based measurements within emerging economies characterised by a lack of an active and liquid market may present challenges. Practical implications Third, implementing market-based measurements within emerging economies characterised by a lack of an active and liquid market may present challenges. Originality/value This study applies the concept of Institutional Work within Institutional Theory to explain how fair value standards are implemented within a localised emerging economy characterised by unique actor roles and goal-directed action.

Role of Accounting and Audit in the Recent Financial Crisis

2013 ◽  
pp. 91-98
Author(s):  
Alev Dilek Aydin
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Fair Value ◽  
Financial Reports ◽  
Historical Cost ◽  
The Public ◽  
Creative Accounting ◽  
Recent Financial Crisis ◽  
Audit Reports

This study aims to assess the role of accounting and auditing in the recent financial crisis. After each crisis, there have been serious discussions concerning the reasons behind those crises. However, no consensus has yet been achieved until now. In this context, the analysis of the relationships among financial crisis, accounting, and auditing is of utmost importance in better evaluating the structural reasons behind the crisis. There are several points that this chapter aims to analyze to indicate the contributions of accounting and auditing to the recent global financial crisis. These points are: impacts of disregarding the main principles of accounting, the wide use of fair value accounting over cost-based accounting, incorrect and misleading financial and audit reports, applications of creative accounting, and lack of transparency and weaknesses of the auditing process. The debates generally concentrate on the use of fair value (mark-to-market) accounting in the financial reports as opposed to the historical cost method. It should be emphasized that accounting is very important as a key mechanism of market economies, because of its crucial role in the functioning of the markets in accordance with the public interest. The chapter concludes with several suggestions by taking the fact into consideration that accounting and auditing systems should be revised for the better protection of interests of the third parties such as investors, potential investors, and the state.

The effect of fair value accounting on the performance evaluation role of earnings

2020 ◽  
Vol 70 (2-3) ◽  
pp. 101341 ◽  
Author(s):  
Mark DeFond ◽  
Jinshuai Hu ◽  
Mingyi Hung ◽  
Siqi Li
Keyword(s):  
Performance Evaluation ◽  
Fair Value ◽  
Fair Value Accounting

On theoretical engorgement and the myth of fair value accounting in China: a reply

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kathryn Bewley ◽  
Cameron Graham ◽  
Songlan Peng
Keyword(s):  
Accounting Standards ◽  
Movement Analysis ◽  
Fair Value ◽  
Research Approach ◽  
Fair Value Accounting ◽  
Political Factors ◽  
Content Type ◽  
Accounting Research

PurposeThis article is a reply to “On theoretical engorgement and the myth of fair value accounting in China” Nobes (2019) from the authors of “Adaptability to fair value accounting in an emerging economy: A case study of China's IRFS convergence” (Peng and Bewley, 2010) and “The Winding Road to Fair Value Accounting in China: A Social Movement Analysis” (Bewley et al., 2018).Design/methodology/approachThis article engages directly with the arguments of the criticism.FindingsThis article argues that the author of the commentary misunderstands the purpose, content and findings of both papers. By providing only a narrowly focused technical analysis of the new Chinese accounting standards, the author fails to see that their qualitative research approach reveals important, complex social and political factors at play in China's attempts to adopt modern international accounting principles. The commentary expresses a view that accounting is a neutral technology that needs only to be clearly defined and enumerated to be correctly implemented, whereas this research takes a much broader and deeper perspective. The authors seek to understand how China was able to successfully adopt fair value accounting standards in 2006, whereas an earlier attempt to introduce fair value in 1998 had led to abuse of fair value measurements and the eventual repeal of fair value regulations in 2001.Practical implicationsThis article helps clarify the purpose of qualitative accounting research, the role of theory in such research and the usefulness of theory in describing and explaining empirical case facts related to changes in accounting standards, particularly in an international context.Originality/valueThis article contributes to a better appreciation of qualitative accounting research.

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