ABSTRACT
Over the last decades, standard-setters in the USA and Europe stressed ever more strongly that companies should ‘mark-to-market’ their financial assets and liabilities, instead of using historical cost. The underlying rationale for advocating this principle is that stakeholders are served better by economically relevant and timely indicators about a corporation’s financial position and performance rather than having to rely on historical – and, hence, often outdated – figures. This practice of marking the financial instruments to the market value and account for any losses and revenues when these occur is called ‘fair value accounting’. Many professional investors also felt changing to fair value accounting provides an opportunity for the accounting profession to catch up with changes in economic reality. Financial markets have become more volatile, leading to asset and liability values that constantly change. At the same time, financial markets have also become more sophisticated, and comparable prices are readily available more than ever before.
