Challenging Fair Value

Concise letter on the continuing debate on fair value accouting to the FT from Hugh Shields, Chief Economics Advisor to the Institute of Chartered Accountants of Scotland.

It seems that most commentators come down positively on the side of fair value accounting from what I have read, with the two main points of:

• Don't blame the messenger
• Pro-cyclical behaviour is driven by the regulatory calculation based on fair value accounting, not by fair value accounting in itself

A recent paper "The Fair Value Controversy: Ignoring the Real Issue" and survey "Reactions to an EDHEC Study on the Fair Value Controversy" by EDHEC seem to support this view, with only 25% of respondents believing that any amendments are necessary, and 75% believing that changes will only lead to more problems.

Unfortunately, it would seem that the SEC in the US has produced 250 pages of suggested tweaks to fair value accounting (see Lex article). Maybe the desire for preventative rules and the political need to be seen to be "doing something" are too strong for regulators to resist...