Policy brief on accounting choice and comparability: evidence from fair value option in U.S. banks

The choice between historical cost (HC) and fair value (FV) measurement is highly debated among standard-setters, academics, and practitioners. Stakeholders disagree on whether accounting measurement choices improve or undermine comparability—the extent to which similar (different) economic events are reflected in similar (different) accounting numbers — enabling meaningful comparison across firms and time. The fair value option (FVO) allows entities to apply FV to most financial assets and liabilities, that would otherwise be measured at HC. Critics argued this discretion could reduce comparability by allowing different treatments for identical assets or liabilities.