An Evaluation Of The Implementation Of Fair Value Accounting: Impact On Financial Reporting

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Karen T. Cascini
Alan DelFavero


fair-value accounting, fair-value option, mark-to-market, financial crisis, subprime, investor risk, equities, collateralized debt obligations, liquidity, earnings management, earnings restatements, convergence


The accounting industry is in a state of continuous change.  In the United States, the historical cost principle has traditionally been the foundation of accounting.  Until recently, assets and liabilities have been required to be recorded at their acquisition prices, with the exception of designated financial assets and financial liabilities.  However, the Financial Accounting Standards Board (FASB) has now created accounting standards that are distant from the cost principle.  Statement of Financial Accounting Standards No. 157: Fair Value Measurements, issued in September 2006 (FAS157, now codified as ASC 820) and Statement of Financial Accounting Standards No. 159: The Fair Value Option for Financial Assets and Financial Liabilities, created in February 2007 (FAS159, now ASC 825-10-25), significantly increases the viability of fair value accounting. The purpose of this paper is to illustrate the benefits and pitfalls of fair value and the corresponding affects on various stakeholders.   


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