Current Issues Financial Accounting

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Critical analysis

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The journal article named “The crisis of fair-value accounting: Making sense of the recent debate” is written by Christian Laux and Christian Leuz in Accounting and Organisations and Society journal (2009). Mr Laux works as a professor of finance at the Goethe University in Frankurt and his research has been published in many journals. Mr Leuz works as a professor of International Economics at University of Chicago Booth School of Business. He has done a lot of research and published his findings in several journals while acquiring many several grants and honours. Both authors have an immense amount of experience and qualifications in the area of accounting. The accounting topics that are
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There is more flexibility for manipulation of the accounting figures. The authors also points out that this flexibility for manipulation should not be underestimated citing past loans and goodwill policies crisis.

The article also finds after discussing the arguments for and against Historical Cost Accounting that is could not be a good replacement for FVA and HCA has problems more severe than the problems with FVA.

The article concludes that the debate about FVA is full of arguments that do not hold up to further scrutiny and need more economic analysis. The authors concludes that in their view, it is better to design prudential regulation that accepts FVA as a starting point but sets explicit counter cyclical capital requirements.

The article concludes that trade off between transparency and financial stability as well as the interactions between accounting and prudential regulations needs further analysis and suggest areas for further research which includes whether FVA did in fact contribute to the financial crisis through contagion effects, and the interactions between FVA and other important elements of the institutional framework.

The articles also suggests the study should be done to find out the what role HCA may have played for the banking crisis and the role of, off balance sheet vehicles and retained positions
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