Transparency, Level 3 Assets, and the Investor

Abstract

This Fair Value Accounting (FVA) advocacy comes from a belief that reflecting market prices as much as possible within financial statements leads to increased transparency for the investor. Firms (primarily banks) argue that illiquidity prevents such a notion and that FVA taken to an extreme leaves firms at the mercy of a market in disequilibrium, which will unjustifiably diminish balance sheet value. These issues are investigated and ultimately it is concluded that nether system, complete FVA or no FVA, will create complete transparency.