Why "Fair Value" Is the Rule

• Autores: Karthik Ramanna
• Localización: Harvard business review, ISSN 0017-8012, Vol. 91, Nº 3, 2013, págs. 99-101
• Idioma: inglés
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• Resumen

  • For the past two decades, fair value accounting-the practice of measuring assets and liabilities at estimates of their current value-has been on the ascent, marking a major departure from the centuries-old tradition of keeping books at historical cost. Why has this happened? The author, an associate professor of business administration at Harvard Business School, offers one answer: The membership of the Financial Accounting Standards Board, which sets the standards for Generally Accepted Accounting Principles in the United States, has shifted over the decades to include more people from the financial services industry. Ramanna offers strong evidence that these executives prefer fair value and several possible motives for their preference. One, investment banks and asset managers are accustomed to using fair value in their day-to-day business. Two, GAAP profits defined on the basis of fair value rather than historical cost accelerate the recognition of gains, particularly in periods of rising asset prices. Three, the use of fair value to determine impairment of goodwill from M&A activity may impose less drag on earnings, potentially boosting M&A activity- a major revenue source for investment banks. HBR Reprint R13O3H.