ABSTRACT
This chapter explains fair value disclosures and practices and focuses on how fair value is reflected in financial institutions' financial reports. Fair value accounting is applied by both financial and nonfinancial firms, but most prevalent for firms operating in financial services industries. Financial assets and liabilities not measured at fair value are assessed at amortized cost. The item 'Financial investments' in the reports of Hong Kong and Shanghai Banking Corporation Limited consists of both fair value assets and amortized cost assets. Many of the financial instruments held must be reported at fair value. Despite their relatively higher importance for financial than nonfinancial firms, fair value assets do not represent the majority of assets reported on the balance sheet for most publicly traded banks. The fair value of trading loans or a trading portfolio of lending agreements is based on observable market prices, broker quotes or market prices for similar instruments.
