I found this article with The Lawyer, FRA Partner Rob Mason, and
Director Gordon MacLeod. They talk about the misuse of Fair value
and the controversies it has created. As more disputes are brought
up from the uncertain economy, experts are brought are called on in
fair value accounting standards. The main topic is to differentiate
between appropriate application and misuse of fair value. There is a
fine line between judgment and manipulation. There’s little
judgement needed for fair valued assets where there are similar
assets with visible market prices. However, when it comes to a
unique asset it opens opportunities for manipulation. Invalid
techniques they mention include “Valuing the asset from the
perspective of the company owning the asset; Using ‘Quoted Prices’
where there is no intention and/or ability to transact at the ‘Quoted
Price’; Discounting forecast profits, without regard to whether the
asset could be sold at the resulting value;”.
After reading the article, it seems it’s not quite reasonable when
prices are quoted as fair value since the prices could be drastically
different the following month or year. The practice is set as a
standard and Fair Value is an estimate not an exact number. We
cannot predict the future and value of assets. Cost accounting has
more of a stand as it reports assets and liabilities at the initial price
they were exchanged for at the time of the transaction.
FAIR VALUE OR FRAUDULENT MISREPRESENTATION?
