Fair value accounting: virtues and vices

Abstract

The radical changes in 'business processes' as well as 'corporate strategies' have mandated the acknowledgement of the immense role of intangibles to corporate bottom lines. Besides, there has been an exponential growth in the spectrum of tradeable financial products. As a consequence, the need for a thoroughly restructured accounting system with standardised norms relating to accounting and reporting of intangibles and complex financial products is immediate to minimise financial debacles (of which there have been many in the last two decades). A lead in this direction was taken by the financial accounting standards board (hereafter referred to as 'FASB') of the USA by pronouncing the financial accounting standards 133, 141, 142 and 157 that usher in the era of 'fair value accounting'. In this article, we highlight some of the issues that are controversial, ambiguous or need further refinement in so far as fair value accounting is concerned.