【正文】 from fire sales). Thus, it is not clear that the standards themselves are the source of the problem. However, as our third conclusion highlights, there could be implementation problems in practice. It is important to recognize that accounting rules interact with other elements of the institutional framework, which could give rise to unintended consequences. For instance, we point out that managers’ concerns about litigation could make a deviation from market prices less likely even when it would be appropriate. Concerns about SEC enforcement could have similar effects. At the same time, it is important to recognize that giving management more flexibility to deal with potential problems of FVA (., in times of crisis) also opens the door for manipulation. For instance, managers could use deviations from allegedly depressed market values to avoid losses and impairments. Judging from evidence in other areas in accounting (., loans and goodwill) as well as the . savings and loans (Samp。neberger and Ashish Shenoy for their excellent research assistance. Christian Leuz gratefully acknowledges research funding provided by the Initiative on Global Markets (IGM) at the University of Chicago Booth School of Business. Christian Laux gratefully acknowledges research funding provided by the Center for Financial Studies (CFS) at the GoetheUniversity Frankfurt. Electronic copy available at: 11. Introduction The recent financial crisis has turned the spotlight on fairvalue accounting (FVA) and led to a major policy debate involving among others the . Congress, the European Commission as well banking and accounting regulators around the world. Critics argue that FVA, often also called marktomarket accounting (MTM),1 has significantly contributed to the financial crisis and exacerbated its severity for financial institutions in the . and around the world.2 On the other extreme, proponents of FVA argue that it merely played the role of the proverbial messenger that is now being shot (., Turner, 2020。 NBER April 2020 (Forthing in Accounting, Organizations and Society) Abstract The recent financial crisis has led to a vigorous debate about the pros and cons of fairvalue accounting (FVA). This debate presents a major challenge for FVA going forward and standard setters’ push to extend FVA into other areas. In this article, we highlight four important issues as an attempt to make sense of the debate. First, much of the controversy results from confusion about what is new and different about FVA. Second, while there are legitimate concerns about marking to market (or pure FVA) in times of financial crisis, it is less clear that these problems apply to FVA as stipulated by the accounting standards, be it IFRS or . GAAP. Third, historical cost accounting (HCA) is unlikely to be the remedy. There are a number of concerns about HCA as well and these problems could be larger than those with FVA. Fourth, although it is difficult to fault the FVA standards per se, implementation issues are a potential concern, especially with respect to litigation. Finally, we identify several avenues for future research. JEL classification: G14, G15, G30, K22, M41, M42 Key Words: Marktomarket, Fair value accounting, Financial institutions, Liquidity, Financial crisis, Banks, Procyclicality * We appreciate helpful ments from G252。Electronic copy available at: Working Paper No. 33 The Crisis of Fair Value Accounting: Making Sense of the Recent Debate Christian Laux GoetheUniversity Frankfurt Christian Leuz The University of Chicago Booth School of Business amp。 NBER Initiative on Global Markets The University of Chicago, Booth School of Business “Providing thought leadership on financial markets, international business and public policy” Electronic copy available at: The Crisis of Fair Value Accounting: Making Sense of the Recent Debate* Christian Laux GoetheUniversity Frankfurt and Christian Leuz The University of Chicago Booth School of Business amp。nther Gebhardt, Claudia Lambert, Haresh Sapra, Hyun Shin, and Marco Trombetta. We thank Dominik Sch246。 Veron, 2020).3 In our view, there are problems with both positions. FVA is neither responsible for the crisis nor is it merely a measurement system that reports asset values without having economic effects of its own. In this article, we attempt to make sense of the current fairvalue debate and discuss whether many of the arguments in this debate hold up to further scrutiny. We e to the following four conclusions. First, much of the controversy about FVA results from confusion about what is new and different about FVA as well as different views about the purpose of FVA. In our view, the debate about FVA takes us back to several old accounting issues, like the tradeoff between relevance and reliability, which have been debated for decades. Except in rare circumstances, standard setters will always face these issues and tradeoffs。L) crisis, this concern should not be underestimated. Thus, standard setters and enforcement agencies face a delicate tradeoff (., between contagion effects and timely impairment). Fourth, we emphasize that a return to historical cost accounting (HCA) is unlikely to be a remedy to the problems with FVA. HCA has a set of problems as well and it is possible that for 3certain assets they are as severe, or even worse, than the problems with FVA. For instance, HCA likely provides incentives engage in so called “gains trading” or to securitize and sell assets. Moreover, lack of transparency under HCA could make matters worse during crises. We conclude our article with several suggestions for future research. Based on extant empirical evidence