Principles for the Application of Fair Value Accounting

Sponsored By Columbia Business School Center for Excellence in Accounting and Security Analysis

Topics:

Accounting

Banking & Capital Markets

Financial Crisis

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Abstract:

The "principles-based" approach in this white paper embraces broad economic concepts but is also pragmatic and specific enough to guide practice. Accordingly, the pros and cons of fair valuing bank loans, core deposits, inventories, investments in subsidiaries, insurance contracts, performance obligations, and debt, to name a few balance sheet items, are addressed. Financial statements for reporting fair values in selected industries are proposed at the end of the paper.

Under the principles of the paper, fair value accounting for non-financial firms is largely limited to assets and liabilities associated with financing activities. Exceptions involve cases where the business model involves holding rights and obligations whose values vary one-for-one with market prices. The application of fair values is a little more complicated in the case of financial institutions where so-called financial assets and liabilities are employed in the business.

DETAILS

Sponsored by: Columbia Business School Center for Excellence in Accounting and Security Analysis

Released: October 28, 2009

Length: 89 pages

Format: PDF (14308 kb)

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