The Role of Fair Value Accounting (FVA) in the Financial Crisis

Elisa Menicucci
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Elisa Menicucci: Polytechnic University of Marche

Chapter 3 in Fair Value Accounting: Key Issues Arising from the Financial Crisis, 2015, pp 55-79 from Palgrave Macmillan

Abstract: Abstract FVA has been criticized for its role in the GFC. During the crisis, the events have proved that while markets are illiquid, financial statements can portray a state that does not reflect the intrinsic economic and financial fundamentals of a company due to FVA. In particular, the financial crisis has shed light on the consequences of fair value measurement in distressed markets and specifically on two key aspects regarding the concept of fair value: volatility and pro-cyclicality. The first strong opposition to fair value is that market values for assets and liabilities risk encouraging too much volatility in the markets under FVA. The second severe criticism is that it can persuade a pro-cyclical stress in asset prices.

Keywords: Market Price; Financial Crisis; Asset Price; Balance Sheet; Earning Management (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-1-137-44826-2_3

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DOI: 10.1057/9781137448262_3

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