Fair Value Reporting of One's Own Credit Quality: Implications for Financial Reporting
نویسندگان
چکیده
The paper analyzes proposed accounting for financial instruments, specifically the practice of a debtor reducing the carrying value of debt and recognizing a gain as the debtor's own credit quality deteriorates. A numerical example based on Boston Chicken in 1997 shows how several common ratios provide opposite signals under current versus proposed accounting. A discussion of the example raises several issues for accounting standard setters to consider in deliberating when to recognize the gain from a decline in the debtor's own credit quality.
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