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You will need to decide upon your accounting date – that is, the date to which your accounts are drawn up. Enter the first day covered by the accounts in box 3.4 (or 8) and your accounting date in box 3.5 (or 9). You can choose any convenient date, for example, the anniversary of the date you began your business or , in a seasonal business, a date when trade is slack and stocks are low. You are entitled to change to a different date if you want to. However , whatever date you choose, you will find your tax is easier to work out if. | Fair value accounting and financial stability Guillaume plantin Assistant Professor of Finance London Business School Haresh SAPRA Associate Professor of Accounting Graduate School of Business University of Chicago Hyun Song shin Professor of Economics Princeton University Market prices give timely signals that can aid decision making. However in the presence of distorted incentives and illiquid markets there are other less benign effects that inject artificial volatility to prices that distorts real decisions. In a world of marking-to-market asset price changes show up immediately on the balance sheets of financial intermediaries and elicit responses from them. Banks and other intermediaries have always responded to changes in economic environment but marking-to-market sharpens and synchronises their responses adding impetus to the feedback effects in financial markets. For junior assets trading in liquid markets such as traded stocks marking-to-market is superior to historical cost in terms of the trade-offs. But for senior long-lived and illiquid assets and liabilities such as bank loans and insurance liabilities the harm caused by distortions can outweigh the benefits. We review the competing effects and weigh the arguments. Banque de France Financial Stability Review No. 12 - Valuation and financial stability October 2008 85 Articles Guillaume Plantin Haresh Sapra and Hyun Song Shin Fair value accounting and financial stability Accounting is sometimes seen just as a veil leaving the economic fundamentals unaffected. Indeed in the context of completely frictionless markets where assets trade in fully liquid markets and there are no problems of perverse incentives accounting would be irrelevant since reliable market prices would be readily available to all. Just as accounting is irrelevant in such a world so would any talk of establishing and enforcing accounting standards. To state the proposition the other way round accounting is relevant only because we live
