Fair value accounting uses current market values as the basis for
recognizing certain assets and liabilities. Fair value accounting makes
financial reporting more uncertain due to the lack of economic
history. I have found the article “Charles Lee: Why Fair-Value
Accounting Isn’t Fair”. The author has explained the reason why fair
value accounting is used, which is “to promote transparency,
reformers have pushed banks and all other companies to embrace
“fair-value” accounting” (Andrews, 2014). However, Professor Lee
argued that fair-value accounting confuses the core purpose of
rigorous accounting to provide accurate economic transaction
records history.
Accounting is to report on the financial information of the company’s
performance and financial position accurately and transparently
under GAAP. It also “provides investors with a language and tools to
make their forecasts of future earnings growth”. But, Fair value
accounting is not going to help. I prefer to use cost accounting for a
company's financial reporting. Cost accounting is more useful than
fair value accounting to keep track of asset history, not to forecast
future prices.
Reference
Andrews, Edmund. (2014). Charles Lee: Why fair-value accounting
isn't Fair. Insights by Stanford
Business. https://www.gsb.stanford.edu/insights/charles-lee-why-
fair-value-accounting-isnt-fair
