According to Greenberg, Fair value accounting (FVA) refers to the
practice of updating the valuation of assets or securities on a regular
basis, ideally by reference to current prices for similar assets or
securities established in the context of a liquid market; historical cost
accounting (HCA) instead records the value of an asset as the price
at which it was originally purchased. Neither FVA nor HCA is
objectively "better" than the other. Instead, both accounting
approaches can provide useful information for different contexts
when applied rigorously, but when they are implemented poorly or
when regulatory oversight is weak, both FVA and HCA can produce
misleading information that can increase systemic risk across the
financial sector.
Greenberg, Michael D., Eric Helland, Noreen Clancy, and James N.
Dertouzos, Fair Value Accounting, Historical Cost Accounting, and
Systemic Risk: Policy Issues and Options for Strengthening Valuation
and Reducing Risk. Santa Monica, CA: RAND Corporation, 2013.
https://www.rand.org/pubs/research_reports/RR370.html.
