Essay: Complications of Using FVA

Sample Essay

Due to the huge impact on financial assets of banks the Australian Bankers’ Association oppose the Fair Value Accounting Standard. The chairman of the association wrote a letter to the chairman of the AASB inviting to comment on FAS 139 of the board. In the letter the complications of using FVA in the banking sector is mentioned with the specific reference to problems such as relevance, reliability and comparability. The association suggests that the fair values of assets are not relevant in making decisions for investors.

FVA is quite appropriate for markets with high liquidity but the association states that FVA is not reliable for financial instruments with illiquid markets. The association proposes some changes in the standard which would make the values of the financial assets more reliable and comparable. Two main alternatives for FVA proposed by the banking association are 1. Instead of recording financial assets at fair values they should be recorded following the accrual method of accounting and the fair values of these assets be presented as a summary in the notes to the financial statements which would allow the decision makers to evaluate the changes of these values, which in turn would enhance the reliability and comparability of this data. 2.

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