Fair Values: A Framework For Teaching The Standards On Accounting For Financial Instruments

Abstract

This paper presents a conceptual framework for an integration of financial reporting objectives and principles related to financial instruments.  We believe this integrated approach to be a superior strategy for discussing this diverse and challenging topic.  In our experience, the typical piecemeal coverage of individual instruments scattered in financial accounting texts and other literature is not effective in providing students with a critical appreciation of the evolution in financial reporting requirements in this area. Our approach in this paper is to classify financial instruments into groups according to their special characteristics as a basis for understanding their relevant financial reporting attributes.  Within this conceptual framework, we then present a synthesis of reporting objectives and existing FASB pronouncements on financial instruments.  Using this framework as a roadmap, students should be able to study current and emerging pronouncements in a conceptually organized and integrated fashion.