Jiri Strouhal, Ph.D.1, Carmen G. Bonaci, Drd.2, and Dumitru Matis, Ph.D.2. (1) Department of Financial Accounting and Auditing, University of Economics Prague, W. Churchill Square 4, Prague, 130 67, Czech Republic, (2) Department of Accounting, Babes-Bolyai University Cluj Napoca, Str. Teodor Mihali, Nr. 58-60, Cluj Napoca, 400591, Romania
This research follows the path of financial instruments’ disclosure, measurement and recognition back from 1988 until our days and analyse the regulations issued, both by United States and International Accounting Standards setters, through the point of view of the historical events which led to their appearance. Study brings its’ contribution to complementing growing literature on the value relevance of fair value, but focuses on the assessment of fair value as a measurement base for financial instruments. The objective of the paper is to link the regulations with the historical events which have guided them to their current shape and meaning. Main aim is to show how the experience of different countries has put its’ mark on the evolution of these regulations. We therefore briefly reviewed capital market studies that examine the usefulness of fair value accounting to investors. In doing so, several key issues which need to be analyzed were identified and through which we draw our conclusions after a closer analysis for the case of the Romanian and Czech capital market. In financial reporting, United States and International Accounting Standards setters have issued several disclosure, measurement and recognition standards for financial instruments, and we conclude our study by saying that all indications are that both standard setters mandate recognition of financial instruments at fair value. The relevance of the study is emphasized when looking through the lens of the current financial crisis, derivative financial instruments being a central element. With Churchill’s words and believe in our thoughts, “the deeper we can look into the past, the farther we’ll see into the future” we plead for fair value assessment by underlying its advantages, while being aware of its limitations.