Fair Value Accounting and the Financial Crisis

Abstract

Fair value accounting (FVA) is the practice of accounting that prices certain assets and liabilities at their present market value. In theory, FVA intends to capture and report the present value of future cash flows related to an asset or a liability (Campmell, Jackson and Robinson, 2008). FVA means that assets and liabilities are reported on the balance sheet at fair value and any changes in the fair value are recognized as gains or losses in the income statement. When fair value is determined based on market prices, FVA is also called mark-to-market accounting