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Fair Value Accounting and Stewardship

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  • A. Rashad Abdel‐Khalik

Abstract

Current standards define fair value as the market price at which an asset could be sold or a liability could be settled in the normal course of business. Setting aside measurement issues, assessing the relevance of exit values has intensified in recent years as fair value becomes a pervasive component of accounting regulation. The current debate about accounting measurement is framed in terms of making a choice between fair value and historical cost. In this article I argue that this is not a correct framing of the issues; knowledge of fair value alone cannot help investors to evaluate stewardship, because they would not know how much resources the management had sacrificed to obtain that fair value. To properly evaluate stewardship, investors need both types of information, historical cost and fair value.Using this information, a rate‐of‐return‐like index of stewardship quality is proposed. This commentary concludes with a statement about three significant drawbacks of relying solely on fair value accounting. Comptabilitéà la juste valeur et gérance Résumé Selon les normes actuelles, la juste valeur s’entend du prix du marché auquel un actif peut être vendu ou un passif éteint dans le cours normal des affaires. Sans égard aux questions relatives à la mesure, l’évaluation de la pertinence des valeurs de sortie a gagné en importance au cours des dernières années, la juste valeur devenant omniprésente dans la réglementation comptable. Le débat actuel sur la mesure comptable s’inscrit dans une logique de choix entre juste valeur et coût historique. Selon l’auteur, cette logique n’est pas celle qui convient à ces questions; la connaissance de la juste valeur à elle seule ne facilite pas aux investisseurs l’évaluation de la gérance, car ces derniers ignorent quelle quantité de ressources la direction a consacrée à l’obtention de cette juste valeur. Pour évaluer la gérance de manière appropriée, les investisseurs doivent disposer de ces deux types d’informations, soit le coût historique et la juste valeur. À partir de ces informations, un indice de qualité de la gérance apparenté au taux de rendement est proposé. L’auteur conclut en citant trois désavantages importants associés au choix de s’appuyer uniquement sur la comptabilitéà la juste valeur.

Suggested Citation

  • A. Rashad Abdel‐Khalik, 2010. "Fair Value Accounting and Stewardship," Accounting Perspectives, John Wiley & Sons, vol. 9(4), pages 253-269, December.
    • Handle: RePEc:wly:accper:v:9:y:2010:i:4:p:253-269
    DOI: 10.1111/j.1911-3838.2010.00013.x
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    References listed on IDEAS

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    1. Plantin, G. & Sapra, H. & Shin, H S., 2008. "Fair value accounting and financial stability," Financial Stability Review, Banque de France, issue 12, pages 85-94, October.
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    11. repec:hal:spmain:info:hdl:2441/4af62emkjr92jr3kjt4lvjbiip is not listed on IDEAS
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