Abstract
This paper debates how fair-value accounting (FVA) that were deeply affected by the global financial crisis. Theglobal financial crisis started in advanced economies spreading to emerging markets and low-income countries.Thus, it has been affected in the middle of 2007 and into 2009, which have examined the role of FVA in thefinancial crisis. This paper is used the value-relevance of fair-value reported under FAS 157 that estimates assetsand liabilities in terms of a simple theoretical and empirical analysis literature framework. This empirical studyproposed is a global crisis that not a normal cyclical crisis of capitalism. Also, it requires a change in themanagement policy to be tackled with new regulatory frameworks for financial institutions in order to stimulateeconomic activities. In other words, FVA may have amplified the crisis. Future research is needed to meetup-to-date information regarding the nature of capital markets and financial institutions. This requires a newtheory of economics; for instance, a change from equilibrium theory to reflexivity theory which requires achange in the underlying model of the economic activity framework. Therefore, this study has concluded a newtheory of the change of equilibrium to reflexivity that led to develop the model in the framework of the economicactivity.
Highlights
Fair-value Accounting (FVA) is defined in IAS 39 as the price at which an asset could be exchanged in a current transaction between knowledgeable and willing parties (FASB, 2006); often called mark-to-market accounting (MTM) is the practice of banks and other financial institutions updating the valuation of assets or securities on a regular basis
Goh et al (2009) findings reveal that the value relevance of net fair value assets decreases over the first three quarters of 2008, whereas Song et al (2010) find that the value relevance of fair values does not decrease over this period
Apart from further analysing the findings presented and discussed, this part has considered some significant outcomes of the potential role of fair-value accounting (FVA) during the financial crisis
Summary
Fair-value Accounting (FVA) is defined in IAS 39 as the price at which an asset could be exchanged in a current transaction between knowledgeable and willing parties (FASB, 2006); often called mark-to-market accounting (MTM) is the practice of banks and other financial institutions updating the valuation of assets or securities on a regular basis. FAS 157 defines FVA as: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (FASB, 2008). The FVA constitutes a hypothetical market price under idealised conditions (Hitz, 2005a). This definition indicates that the FVA is a market-based measure of value (Hitz, 2005b). The subprime mortgage crisis became a global issue, either directly due to the poor lending practices in countries such as England, Ireland, and Spain, or because of unsustainable growth in countries such as India and China
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