Can fair value accounting lead to dysfunctional hedging decisions?

In a forthcoming issue of the Journal of Accounting Research, I co-author a study (titled “Fair Value Accounting and Managers’ Hedging Decisions”) that investigates how fair value accounting affects managers’ real economic decisions. The controversial impact of fair value accounting has been long debated, and the recent financial crisis further accentuates opponents’ concerns on its role [...] Read more > >

Has the "balance sheet approach" led to a decline in the use of balance sheet covenants?

Journal of Accounting and Economics. The paper is entitled, “Accounting standards and debt covenants: Has the ‘Balance Sheet Approach’ led to a decline in the use of balance sheet covenants?” My first reaction was to question what the author meant by a “balance sheet approach” because I’ve never heard a good explanation of what the [...] Read more > >

Leisenring: IFRS 9 Abuse "Inevitable"

Somehow I ended up on the mailing list of Risk.Net, which hails itself as “The world’s leading monthly magazine dedicated to the risk management and derivatives industries.”  In this week’s top story, headlined “Abuse of revised IFRS standards “inevitable” – IASB’s Leisenring“, Jim is quoted as expressing concern about using management intent to determine how [...] Read more > >

Fair Value Accounting From the Mouths of Babes Students: Zoe-Vonna Palmrose's 2005 AAA Address

A few weeks ago, in a post entitled “Why Do Standard Setters Make Such Awful Decisions?,”  I cited Zoe-Vonna Palmrose as one of several academics who think that the FASB’s embrace of fair-value accounting is so obviously mistaken that even children could see it.  Bill Kinney pointed out that my recollection of Zoe-Vonna’s 2005 presentation [...] Read more > >

Leslie Seidman: In the "Cautionary Camp" on Fair Value

A few weeks ago FASB Board member Leslie Seidman joined us for office hours.  We covered a lot of ground, and Ray has already written on some of her ideas for research.  I thought I would summarize her rather cautionary views on fair value accounting for financial instruments.  Playing to the academic audience, Ms. Seidman [...] Read more > >