A Guide to the New Language of Accounting and Finance

F

Fair Value is the amount of consideration that can be agreed for an asset or a liability to be exchanged or settled in an arm’s length transaction between informed and willing parties. Fair value hedges are derivatives or other financial instruments to hedge potential changes in the fair value of the whole or part of a recognized asset or liability. The position internationally is covered in IAS 39 and in the United States by SFAS 133. In a well-referenced article, Frestad (2018) proposed a model that shows how nonfinancial firms that prefer predictable earnings jointly optimize their hedging strategy and the choice between fair value and hedge accounting.

Fair Value Accounting has been advocated by standard setters who argue that fair values ...