b 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) b 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.
b b b 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.
b b b b b b
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
