Historical enquiry reveals how ideas mutate. This paper traces how ideas and practices underpinning initial understandings of fair value accounting (FVA) have changed as the concept drifted from the utility rate-setting context to that of corporate financial reporting. The recall of history for the purpose of ‘learning lessons from the past’ has frequently resulted in misunderstandings of the historical record and misapplication of so-called lessons. A more fruitful approach to recalling history is to gain insights into the development of the ideas (good and bad) that have contributed to current predicaments. Initially fair value was the basis for specific pricing calculations related to companies with a highly restricted scope of operations. Later, more by accident than design, the concept became a general purpose application used in the financial statements of highly and freely adaptive companies. The mark-to-market (MtM) dispute emerging in the global financial crisis (GFC) has given rise to a further mutation of the use of FVA. Discarding MtM contradicts what history tells us was the purpose of adopting fair value into accounting for adaptive companies. This analysis also highlights how conducive accounting theory and practice are subject to politicisation. Accounting is an apparently unresisting victim of interested parties’ special pleading, resulting in the corruption of its technical function – in this case primarily because it is inconvenient to have accounting data tell it how it is.
Australian Accounting Review Vol. 20, Issue 2, p. 185-194