Response to FASB exposure draft, "the fair value option for financial assets and financial liabilities, including an amendment of FASB statement No. 115"

The Committee believes that expanded fair-value-based financial statements may provide users useful information, provided the fair value estimates are reliable. Recent research using fair value data on financial institutions suggests that proxies for full fair value income may help investors better assess firms' risk. In addition, extant research suggests that the recognition of fair value changes may increase the salience of fair value numbers to market participants. However, the academic research on fair value accounting has focused mostly on financial institutions, where the core business operations include financial instruments. The Committee is concerned with the FASB's proposal to apply fair value accounting to a broader set of firms without first sufficiently addressing reliability concerns. In addition, the ED provides limited guidance on the income statement presentation of fair value earnings as well as on the extent of footnote disclosure. The Committee believes that presentation and disclosure are important considerations in developing a fair value financial reporting model. In addition, the Committee is not convinced that a contract-by-contract fair value option would necessarily improve the quality of financial reporting and constrain opportunistic earnings management.