Back to basics

We take you back to the credit basics to review everything you thought you already knew but were too afraid to ask... Vincent Papa, senior policy analyst at the CFA Institute, looks at fair value accounting

During the credit crisis, fair value accounting has exposed the risks of holding subprime assets. By definition, fair value considers the most current and complete assessments of the value of economic items. In that respect it is superior to historical cost.

Apart from providing information on the risk associated with fluctuations in value, fair value reporting informs investors about the opportunity cost to managers of holding particular assets. Misleading income stability, based on an exclusive

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