Summary
The referred article speaks of fair value and its impact on credit rating. Fair value is related to a number of instruments including derivatives, hedging and plain vanilla instruments. I was recently at a conference in Agra, India where the Chairman of the IASB Sir David Tweedy mentioned IAS 39 in passing and said that the IASB was still trying to get to grips with its intricacies. In this analysis I look at why fair value will continue to confuse but is essentially the light in the right direction for understanding corporate financial reports.
Analysis
1. Fair value is complicated because the underlying instruments whose value it tries to estimate the value of are difficult to evaluate.
2. The number of instruments where fair value is applicable are tremendous and never ending.
3. At the International Conference on Accounting in Agra, India during 3-5 July 2009 the theme was "Winds of Challenges" a number of speakers referred to fair value - the most prominent being Sir David Tweedy and also Mr Ernest A. Almonte, Chair of the AICPA.
4. Considering the present global economic recession the general feeling of the speakers and the delegates at the conference was that fair value and measurement of the value of financial instruments was essential.
5. At the same time the number of accounting systems in vogue in the world - IFRS, USGAAP, Indian GAAP etc. were too confusing.
6. The speakers who addressed the conference apart from Sir David Tweedy and Mr Almonte were the President of the Australian Institute of Chartered Accountants, President of the Institute of Canadian General Accountants and Presidents of the Accounting Bodies of a number of other nations including of course the President of the ICAI (India).
7. The fact that the IASB has brought out a discussion paper on fair value just shows that efforts are being made to throw light on a complicated subject which will take some time to settle down.
