The typical entity has many different investments to select from.

Fair

value accounting is either directly used to account for, or has an indirect

effect on, the vast majority of these investments. This chapter explores

the fair value implications on two of the most common investments—debt

and equity securities for which there is a readily determinable market value.

These are equities that are actively traded on a public market.

Scope of Investments Covered

Debt securities often provide for a fixed rate of return that is guaranteed not

to fluctuate during the term of the debt. Included among the many examples

of debt securities are those issued by governments and government

agencies (such as the U.S. Treasury, U.S. federal agencies, states and municipalities,

and non-U.S. governments and government agencies), bonds issued

by corporations, mortgage-backed securities, and many others. Excluded

from this definition of debt securities are trade accounts receivable resulting

from sales, consumer and real estate loans of financial institutions, and

other receivables not associated with a “security” (i.e., it is either traded on

a market or is represented by a registered instrument and considered to be

an investment).

Equity investments can include a wide range of assets, including the

following five types:

1. Wholly or majority-owned subsidiary companies

2. Investments in individual equity securities that are actively traded in

public markets

3. Investments in mutual funds that are publicly traded

4. Equity holdings in nonpublic companies