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:

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

2. What are the advantages and disadvantages?