Exploring the Relevance and Reliability of Fair Value Accounting

While the FASB had regarded relevance and reliability as two of the most important qualitative characteristics for years, it replaced reliability with faithful representation revising its Concepts Statement No. 2 in 2010. Even if fair values are relevant for the measurement of assets and liabilities, these figures are not necessarily reliable or verifiable. We believe this point is the central message of Ramanna, K. (2022). Unreliable accounts: How regulators fabricate conceptual narratives to diffuse criticism. forthcoming. The application of fair value measurement has been substantially extended recently to income recognition of not-for-trading financial instruments and even non-financial assets. Is this extension due to the primacy of relevance over reliability, or the relaxing of requirement for reliability toward faithful representation? Whatever measurement method we use, it is absolutely necessary to construct a system of concepts on which the purpose of measurement should be established. In spite of the fact that any measurement method is a means to intended purposes, if we first chose a particular method and applied it to every situation slavishly, we would become similar to a bogus doctor selling a fake drug as panacea valid for any disease.