The Fair Value Controversy: Ignoring the Real Issue

2In the context of the measures being taken to put an end to the current financial crisis, the extent to which fair value accounting can be blamed—or whether it can be blamed at all—for the intensification of the slump has been widely debated. This position paper shows that this debate, which ignores the real issues, has led to accounting changes that are at odds with their objectives. We examine the relevance of the accusations levelled at fair value and of the responses proposed in an attempt to improve the use of fair value accounting and make it more relevant to the economic realities faced by banks as well as by companies in general. The critics of fair value accounting have failed to consider the problem upstream; that is, they do not first examine the role of accounting. As it happens, the objective of accounting is to provide as reliable a description as possible of the net assets of a company at a given time, in the environment prevailing at the moment of the statement of the accounts. The role of financial reporting is to act as a source of information; it does not have a prudential role. Although accounting doctrine has taken a more financial approach in recent years, accounting cannot replace financial and prudential analysis