The Evolution of Fair Value Accounting and Its Impact on Financial Reporting Transparency: A Theoretical Review
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This review examines the conceptual developments and the larger framework's useful implications of fair value accounting of transparency of reporting on finances. Based on a large amount of theoretical and empirical literature, the review explores the principles underlying fair value assessment and compares it with historical cost accounting, and discusses its applicability in the context of agency theory, theory of decision-usefulness, and the efficient market hypothesis. The evolution of fair value accounting is traced back to the early paradigms, to the major regulatory developments, such as international standard-setting efforts, and the reaction to the world financial crisis. The review also assesses its acceptance in the public and private spheres, with the emphasis on the contribution of international frameworks like the “International Financial Reporting Standards” and the “International Public Sector Accounting Standards”. The main points that have been discussed are the advantages of greater relevance, comparability, and timeliness of financial reports and the problems of estimation uncertainty, auditability, and creative accounting. Also, the paper examines how governance, legal systems, and digital technologies, like blockchain, artificial intelligence, and sustainability reporting, affect the use of fair value accounting. This review ends with a synthesis of research gaps and suggests future directions that require more behavioral, cross-national, and normative research that places fair value accounting as an essential area of future academic and policy debate.
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