Three accountancy professors at the University of Notre Dame’s Mendoza College of Business recently won a major research award for their study examining the role of fair-value accounting during the recent financial crisis.
Brad Badertscher, Jeffrey Burks and Peter Easton received the American Accounting Association Financial Accounting and Reporting Section Best Paper Award for 2013. Their paper, “A Convenient Scapegoat: Fair Value Accounting by Commercial Banks during the Financial Crisis,” published in the January 2012 edition of The Accounting Review, was selected from among all financial accounting and reporting studies published in the last five years.
The Best Paper Award is intended to enhance interaction among academics and practicing members and to provide an incentive for researchers to focus their efforts on topics relevant to the practicing profession and standard-setters.
Fair-value accounting, also known as mark-to-market accounting, has been an evolving part of Generally Accepted Accounting Practices in the United States for more than half a century. It requires banks to report assets at current market value versus the historical value, or original purchase price. As the U.S. struggled to come out of the economic recession, many critics—most notably, the banking industry—blamed fair-value accounting for exacerbating the impact by forcing them to tighten loan requirements. Congress subsequently held hearings on the subject and pressured the Financial Accounting Standards Board, which responded swiftly with changes.
Among their conclusions, however, the Notre Dame researchers contended the effect of fair-value accounting was negligible, and that banks simply had a lot of charge-offs for bad loans. (Read more about the study in the Notre Dame Business magazine story, “Is Fair Value Really Fair?”)
“Our findings suggest that Congress was rash in demanding rule changes,” said Easton. “This should give pause to advocates of even more government involvement in accounting standard setting.”
The award committee, while noting that the Best Paper Award is not intended as an endorsement of a particular research conclusion, provided the following comment regarding the study: “The award committee commends the authors on addressing one of the most pressing and important research questions for accounting scholarship and standard setting in recent years. Research on fair value accounting is ongoing and this paper will play an important role in the debate.”