Fair value accounting versus cost accounting has been a
controversial issue for years. The article I chose is "Is It Fair to Blame
Fair Value Accounting for the Financial Crisis?". You can review the
article at: https://hbr.org/2009/11/is-it-fair-to-blame-fair-value-
accounting-for-the-financial-crisis
. In the article the author states
we must recognize that there is no single best way to value the
assets of financial institutions. Some assets may be more accurately
measured under fair value accounting, while others may be better
measured under the historical cost approach (Pozen, 2009). I agree
with the author; I do not believe one approach is more accurate than
the other, I believe it depends on the asset. The author suggest three
recommendations for realistic reporting; Enhance creditability of
marking to model, unlink accounting and capital requirements, and
calculate earnings per share both ways (Pozen, 2009). I agree that we
can make these accounting complexities clearer by adopting a
multidimensional approach to financial reporting.
When it comes to fair value versus cost accounting, I am on the
fence. I see where fair value accounting is beneficial for some assets
where you would want to reflect the current market value, but I also
see where cost accounting is a more straight forward and simplified
approach.
