The ups and downs of fair value

The advent of fair-value accounting has received plenty of criticism. But its proponents say it has increased transparency in the derivatives market and contributed to the emergence of derivatives indexes. John Ferry looks back at the evolution of FAS 133 and IAS 39

When the use of derivatives, particularly interest rate swaps, started to explode in the 1980s, it was inevitable that the accounting community would have to face up to how best to represent these instruments in official reporting. Since then, a number of initiatives and standards have emerged, most notably US Financial Accounting Standard (FAS) 133 in 1998 and International Accounting Standard (IAS) 39 a year later, both of which cover accounting for financial derivatives and hedging activities