CFAs continue to support fair value for financial instruments

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21 Apr 2008

The Centre for Financial Market Integrity of the CFA Institute, which represents the views of professional investors, has released the following statement in light of the earnings reports from banks and other financial intermediaries that reflect changes in the market value of financial instruments:

We believe that the widespread use of fair value measurement will ultimately play an important role in improving market discipline and transparency, as well as assist in making more informed risk management decisions. The CFA Institute Centre believes that current chatter about the need to 'roll-back' or revisit fair value is a misguided effort on behalf of preparers that would ultimately result in less transparency and market integrity. Maintaining the current mixed attribute model for reporting financial assets and liabilities has enabled more complacent risk management and has contributed to the lack of market discipline identified by regulators.

The Institute's Statement (PDF 57k) says that "fair value 'smoothing' will mask the reality of market conditions and allow companies to hide risk". The CFA Institute conducted a Survey of its Members regarding fair value requirements for financial institutions. Here is a summary of the responses of 2,006 CFA Institute members:

Do fair value requirements for financial institutions improve transparency and contribute to investor understanding of the risk profiles of these institutions?

  • Yes – 79%
  • No – 21%
Are fair value requirements aggravating the global credit crisis?
  • Yes – 55%
  • No – 45%
What is the overall impact of fair value requirements on market integrity?
  • Improve – 74%
  • Hurt – 19%
  • No impact – 7%


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