Fair Value Accounting and the Current Financial Crisis

John M. Trussel, PhD, CPA, and Laura C. Rose, CPA

The accounting for financial assets and liabilities is a complex issue that has been evolving toward the use of fair value. Both the FASB and IASB provide the option of using fair value accounting in reporting financial assets and liabilities and certain other items. This move is not without controversy. Many have opined that the use of fair value accounting, as opposed to historical cost accounting, has helped cause the turmoil in the financial markets. Research indicates that the exclusive use of one accounting method may not be efficient for financial institutions. The authors believe that the FASB should consider an alternative accounting approach that would incorporate both systems and mitigate the inefficiencies of using just one accounting method.