Enlightenment value theories and the three levels in fair value accounting

Abstract

I cannot endorse Donleavy’s conclusion that “ fair value” accounting is derived from the eighteen-century economic thinkers: Anne Robert Turgot; Richard Cantillon; and Adam Smith. In his well-written study, Donleavy seems to misperceive fair value accounting as the reporting of accounting items by their market values. However, fair value accounting also advocates a theoretical explanation of how market prices would be formed and why they would be fair values. It is important to clarify this point, because it leads to two subsequent conclusions. First, that the price/value theory in fair value accounting is quite distinct from Turgot, Cantillon and Smith’s theories on the same matter. For instance, Cantillon and Smith suggested cost-based theories of value, where labor was the key element. Second, it is possible to distinguish fair value accounting from periods where the case for reporting accounting rubrics by market values was promoted based on other theoretical motivations.