we focus how to measure investments in marketable securities by market value. Firms may also use market value to measure their own liabilities based the quotes of their own credit worthiness. Thus, the market value of their liabilities increases as their credit quality improves and vice versa. The increase in the market value of their own liability would result in fair-value gains. The decrease in the market value of their own liabilities would result in fair-value losses.

For example, HSBC reported $6.6 billion fair-value gains due to its own credit deterioration over 2008, but reported a fair-value loss of $2.5 billion for the first half of 2009 as its credit quality improves. The International Accounting Standards Board (IASB)s and the US Financial Accounting Standards Board's (FASB)s inclusion of their own credit risk in liability measures have been controversial. One may argue that to report a gain on their liabilities as a direct result of their own creditworthiness deteriorating, is misleading and counterintuitive. Others argue that excluding their own credit risk from liability measurement creates a mismatch between assets and liabilities held at fair value.

Discuss:

What do you think? Should we include a firms own credit risk when measuring the market value of its debt?

What are the advantages and disadvantages?