Fair Value Accounting

Fair Value Accounting is a financial reporting method where companies measure and report assets and liabilities at their current market value rather than their original purchase price. This approach provides an up-to-date representation of a company’s financial health, reflecting the real-time impact of market changes.

Example

A financial firm adjusts the value of its investment portfolio at the end of each quarter to match current market prices. This means that the balance sheet and income statement will show the most recent gains or losses, directly impacting the firm’s reported profitability.