a Fair value accounting has been historically controversial. Fawzi A. Al
Sawalqa talks about this controversy in the article Fair Value
Accounting: A Controversial but Promising System Fawzi Fair value-
with-cover-page-v2.pdf (d1wqtxts1xzle7.cloudfront.net). The author states
that fair value accounting can be unreliable. "Studies in fair value
accounting have shown defects in measuring fair value, especially
under level 3 of fair value hierarchy where the active market does not
easily exist for the asset or liability." (Sawalqa, 2015) The author also
brings up an interesting point. Fair value accounting can be useful
because it measures value in the current market reflecting the time
period, however, the location of where the accounting is being done
determines whether to use fair value accounting or cost accounting.
In developed countries, fair value accounting is common but in
developing countries, fair value accounting is almost useless due to
still emerging markets.
a a a Other deficiencies in fair value accounting are how in times of
recession businesses reclassified assets to avoid recognizing a loss
and reporting inaccurate information. It seems fair value accounting
does allow room for manipulation and distortion of the company's
financial standings. This also brings the strength of the company's
ethics into question. Since it is based on current market value which
can be so unstable personally, I prefer cost accounting. While there
can be inaccuracies in both methods our goal in accounting is to be as
accurate as possible.
a a a a a a a
Reference:
Sawalqa, F. A. A. (2015, December 22).
Fair Value Accounting: A
controversial but promising system
. Accounting and Finance
Research. Retrieved March 20, 2022, from
http://dx.doi.org/10.5430/afr.v5n1p88
