Problems associated with the Value-Relevance of Financial Derivatives according to IAS 39

This paper studies some fundamental issues concerning the relation between market value of equity and the fair value of financial derivatives determined according to International Accounting Standard No. 39, Financial Instruments: Recognition and Measurement (IAS 39) in non-aktive markets. It is shown that the fair value of a financial derivative is not relevant in a non-active market. It is also demonstrated that in a setting of a non-active market, determining the fair value under the fiction of an active market does not take all available information into account. Additionally, it is noted that the definition of fair value in non-active markets according to IAS 39 has two consequences: <p> (i) The market value of equity at the balance sheet date reflects the company's value in a fictive market situation. <p> (ii) The fair value calculated by one valuation model is in general not unique.