Abstract
Purpose The purpose of this paper is to describe and analyze the accounting standards reforms that have moved the accounting profession away from rules‐based towards principles‐based accounting practice and financial reporting, and to explore the implications for boards of directors of fair value estimates of the unknowable contaminating financial statements with financial misstatements. Design/methodology/approach The paper critically reviews the internationally accepted accounting, auditing and financial reporting standards with respect to fair value accounting and relates them to directors' fiduciary duties – the duties of care, of oversight, and of obedience. Findings The search for relevance in financial accounting raises daunting challenges for boards of directors tasked with fairly presenting the financial condition of a reporting business entity. Research limitations/implications The accounting profession has long been epistemologically conservative, judging reliability to be more important than relevance in the compiling of financial statements. With the fair value reforms, relevance has achieved ascendency over reliability. This necessitates an increase in the need for more research in the epistemology and ethics of accounting. Practical implications Boards of directors need to be well‐informed about, and fully engaged with, the assessment of the level of risk of material misstatement associated with the fair value accounting estimates, and with the adequacy of the related mandatory explanatory disclosures. Originality/value This paper's originality is grounded in its exploration of the epistemology of accounting in the light of the adoption of fair value conventions in the internationally accepted accounting, auditing and financial reporting standards and its drawing out of the implications this has for corporate governance.