TITLE:
Fair Value and Volatility in the Cases of Assets Securitization, Derivative Hedging and Loan Loss Provisioning
AUTHORS:
Lan Sun
KEYWORDS:
Fair Value, Volatility, Assets Securitization, Derivative Hedging, Loan Loss Provisioning
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.5,
October
27,
2015
ABSTRACT: The concept of fair value is a key element in the international
accounting standards and its implementation poses serious concerns in terms of
financial stability. There are a number of issues which are particularly
important for financial stability that are evidenced in the GFC and have been
received much attention in the reform of fair value regime, namely assets
securitization, derivatives hedging and loan loss provisioning. This study
analyzes and shows the way in which financial reporting for fair values could
create volatility through the processes of assets securitization, derivative
hedging and loan loss provisioning. The other objectives of financial
reporting, namely reliability and comparability, are achievable only if the
measures of fair value are reliable and relevant. Fair value measurement is
supported on the ground that it provides information which is more relevant to
the economic substance and presumably such information will be more useful to
investors. Nonetheless, changes in the market landscape and financial
innovation are evident and accounting standards so far have not kept pace with
the development of financial market which is revealed in this study by
analyzing the transactions of assets securitization, derivative hedging and
loan loss provisioning.