Fair Value Accounting: A Controversial but Promising System

Abstract

There is almost a worldwide consensus that the usage of fair value accounting is not an easy task due to a number of limitations that affect its reliability. Prior studies in fair value accounting have unanimously agreed on the existence of clear defects in measuring fair value, especially under level 3 of fair value hierarchy where the active market does not easily exist for the asset or liability. Based on previous literature in the field, the current study discusses the reasons for the ongoing debate on the reliability of fair value accounting and also suggests some relevant procedures to enhance fair value accounting system. In particular, the paper offers some creative suggestions that standard-setters (e.g. FASB and IASB), regulators, practitioners and academics should globally adopt to ensure a brighter future for fair value accounting. In addition, the paper provides a set of the necessary future research avenues in fair value and the related accounting standards.