Background Note | HBS Case Collection | March 2009 (Revised February 2011)

Note: Fair Value Accounting for Investments in Debt Securities

by William E. Fruhan

Abstract

The note describes how fair value accounting applies to debt securities that are classified by financial institutions as (1) "trading" securities, (2) "available for sale" securities, or (3) "hold to maturity" securities. It explains the hierarchy for inputs used in valuing Level 1, Level 2, and Level 3 financial assets. Finally, it notes the percentage of assets held by four types of financial institutions that are (a) accounted for at "fair value," (b) the hierarchical categorization of the assets, and (c) the percentage of assets held by each institution category where changes in the fair market value affect that institution's reported income.

Keywords: Fair Value Accounting; Financial Reporting; Assets; Debt Securities; Investment;

Citation:

Fruhan, William E. "Note: Fair Value Accounting for Investments in Debt Securities." Harvard Business School Background Note 209-134, March 2009. (Revised February 2011.)