The IAS/IFRS after the crisis: limiting the impact of fair value accounting on companies' capital

Strampelli Giovanni ()
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Strampelli Giovanni: *Assistant Professor of Company Law at Bocconi University, Milan

European Company and Financial Law Review, 2011, vol. 8, issue 1, 1-29

Abstract: The recent financial crisis has demonstrated that fair value accounting can affect not only the relevance of accounting information but also companies' assets integrity. In countries where company laws prompt companies to maintain minimum legal capital, the recording of unrealized losses may reduce a company's assets to a level below minimum thresholds. If fair value losses are transitory and do not reflect an actual lowering of a company's assets value, fair value accounting may still prompt shareholders to consider an unnecessary recapitalisation or the “premature” dissolution of a firm. This article examines the pros and cons (also in the light of the recent financial markets crisis) of fair value as an accounting technique and illustrates the effects of the adoption of IAS/IFRS on the legal capital system. It also examines the various solutions that can be used to limit the distorted effects created by the interaction between fair value accounting and the system of legal capital set out by the second council directive 77/91/EEC.

Date: 2011
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DOI: 10.1515/ecfr.2011.1

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