A proposal to improve fair value accounting

January 2009
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Point of view: A proposal to improve fair value accounting

At a glance

PwC explains the benefits and challenges of fair value accounting for measuring the value of financial instruments

Highlights:

The proposal offers four advantages for reporting losses on non-trading debt securities:

  1. Credit and non-credit losses would be reported separately and prominently in a redesigned income statement. This enhances transparency by providing more information about changes in fair value.
  2. Only incurred losses are recorded in net income. This is consistent with accounting for credit losses on loans and eliminates an inconsistency in how incurred losses are reported.
  3. Continues to report debt securities at fair value.
  4. Reduces effect of temporary market volatility on net income. Swings in earnings will be moderated in both falling and rising markets— essentially buffering the extremes of bull and bear emotion.