Prague Economic Papers 2011, 20(1):71-88 | DOI: 10.18267/j.pep.388

The Role of Fair Value Measurement in the Recent Financial Crunch

David Procházka
Department of Financial Accounting and Auditing, University of Economics, Prague (prochazd@vse.cz).

Fair value measurement became pervasive to financial reporting over last 20 years. Under fair value accounting, entities are obliged or permitted to measure particular assets and liabilities at their fair values as at the reporting dates. Fair value is a current market-based hypothetical value. This market value is not always directly observable. The debate on usefulness of fair value accounting has arisen in connection with the financial crunch and economic crisis in years 2007-2009. The opponents of fair value accounting insist on that financial reporting based on fair value measurement has accelerated the financial crisis and significantly worsened the impact on affected companies. On the other hand, there are several important opinions in favour of fair value accounting. The paper aim is to contribute to the actual debate whether fair value accounting played the role of a messenger or a mover in the recent financial crunch and subsequent economic recession and to analyse the characteristics of fair value accounting from the economic point of view.

Keywords: measurement, fair value, economic income, accounting income
JEL classification: M41

Published: January 1, 2011  Show citation

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Procházka, D. (2011). The Role of Fair Value Measurement in the Recent Financial Crunch. Prague Economic Papers, 20(1), 71-88. doi: 10.18267/j.pep.388
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