Business, Management and Accounting
4 years ago

Fair value accounting may not be as decision-relevant as believed.

SSRN Electronic Journal
The Decision Usefulness of Fair Value Accounting - A Theoretical Perspective
Joerg-Markus Hitz

Paper Summary

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The article questions the usefulness of fair value accounting from a theoretical perspective. It examines arguments made by regulators and standard setters, focusing on decision relevance. The analysis shows that fair value measurement can be justified, but the conceptual case is weak. The idea of information aggregation supporting fair value measurement is limited in validity. Comparing fair value accounting to historical cost accounting gives mixed results. One key implication is the need to clarify standard setters' understanding of accounting income and its impact on decision-making.