Article | Harvard Business Review | March 2013

Why 'Fair Value' Is the Rule: How a Controversial Accounting Approach Gained Support

by Karthik Ramanna

Abstract

For the past two decades, fair-value accounting—the practice of measuring assets and liabilities at estimates of their current values—has been on the ascent. This marks a major departure from the centuries-old tradition of keeping books at historical cost. It also has implications across the world of business, because the accounting basis—whether fair value or historical cost—affects investment choices and management decisions, with consequences for aggregate economic activity. This article discusses the role of investment banking and investment management industry veterans on the Financial Accounting Standards Board in the growth of fair-value accounting. It raises the possibility of special-interest capture of accounting regulation by segments of the financial-services industry.

Keywords: accounting; Fair Value; FASB; finance; politics; Accounting; Fair Value Accounting; Financial History; Financial Reporting; Accounting Industry; Financial Services Industry; United States;

Citation:

Ramanna, Karthik. "Why 'Fair Value' Is the Rule: How a Controversial Accounting Approach Gained Support." Harvard Business Review 91, no. 3 (March 2013).