A Review and Reassessment of U.S. GAAP Fair Value Accounting in Anticipation of IFRS Convergence and International Harmonization

This paper discusses the emergence and integration path of the fair value approach to asset valuation in U.S. GAAP financial accounting and reporting. Traditionally, GAAP accounting relied on the historical cost approach for asset valuation; however, fair value is now used for many asset valuations. The fair value concept has been both hailed and reviled in financial circles and by corporate financial managers who have been reluctant to use fair value in their financial statements and/or supporting disclosures. Due to the general decline in the economic environment and financial markets since mid-2008, FASB issued guidelines in early 2009 to establish adaptations of fair value presentations. These adaptations should be used when mark-to-market measures are not possible or when no market exists for financial assets in severe distress. A debate which began in the 1970s has re-emerged over contemporary valuation using the fair value approach versus the more traditional historical cost approach in the financial statements. Much of the friction focuses on the basic accounting conceptual framework and the need for contemporary measures of asset valuation. Codification of the uses for fair value measurement and consistent methodology of the concept has proven problematic across the financial accounting spectrum. If fair value is to be integrated more fully into GAAP before companies convert/converge to IFRS, a comprehensive and consistent use of the fair value concept needs to be developed