For this week’s discussion, I chose an article called “Financial Reporting
Another Fair Value Controversy” from Strategic Finance magazine.$ The
author in this article focuses mainly on the implications of company debts
when using Fair Value Accounting.$ He discusses in detail the net effect on
the income statement as well as perception from creditors when a company
that is experiencing financial difficulties, is able to depress the appearance of
their debt by reporting a gain on their income statement, by resolving their
debt at a lower cost, and maintaining their credit worthiness.
I agree with the author’s opinions in this article.$ Not only can there be a
significant differentiation between two companies in the same financial
situation, with one using Cost Accounting and one using Fair Value
Accounting, but companies aren’t going to realize a loss intentionally,
appearing less financially stable, and Fair Value gives them the opportunity
to realize the gain when the debt is less than the amortized cost.$ The lack of
consistency in the financials for a company using Fair Value Accounting
makes it difficult to attain fair market comparisons.
As a user of financial statements, I prefer Cost Accounting.$ In my opinion,
there are too many variables in Fair Value Accounting that leave the financial
statements more open to interpretation, than the facts that can be found in the
financial statements of a company using Cost Accounting.
$
Pounder, B. (Ed.). (2012, November).$Financial Reporting Another Fair
Value Controversy. Retrieved March 24, 2022, from
https://sfmagazine.com/wp-content/uploads/sfarchive/2012/11/FINANCIAL-
REPORTING-Another-Fair-Value-Controversy.pdf
