ABSTRACT
Under US Generally Accepted Accounting Principles, recurring fair value measurement applies predominantly to financial assets and liabilities. Although non-financial firms have expanded their holdings of financial instruments over the years the largest concentration remains among financial institutions. This, in turn, makes regulatory capital an important component of the 'fairness of fair value' discussion, once again emphasizing the role of the balance sheet. Recurring fair value measurement requires a periodic updating of the values of the affected balance sheet components so they reflect current market pricing. Under a fair value measurement regime, the focus shifts from the income statement to the balance sheet. In the case of full fair value accounting, the balance sheet serves as a summary statistic of firm value, as the income statement reflects the change in firm risk. Earnings are the most prominent and closely tracked universal corporate performance metric.
