Justin Marlowe, a research professor at the University of Chicago’s
Harris School of Public Policy, stated in his article that fair value
accounting is only fair in the eye of the beholder. He stated fair value
accounting is loved by government accountants but is scorned by
bankers and investors. Justin explains that there are typically two
ways to determine something's worth, it is either worth what you
paid for it, or worth what someone else is willing to pay for it.
Government accountants manipulate the numbers and give false
information by reporting the average value of pension investments
during a specific point in time, when the markets are doing well,
rather than over a period of time to show average market trends to
reflect normal market conditions.
I agree with Justin, it isn't exactly fair if you are only reporting during
specific time periods because you know the numbers will reflect
favorably. Investors should know the full story of a business, the
good the bad, and the ugly. They need to have the full picture
painted over the course of average market trends so they can make
decisions.
In my opinion, cost accounting is the better choice. I understand
there is benefit in real-time data that comes from fair value
accounting, however, fair values are built on assumptions and
markets change on a daily basis so it isn't 100% accurate. Whereas
cost accounting displays actual historical data that has already
occurred.
Marlowe, J. (2021, April 21). Is 'fair value' accounting actually
fair? Governing. Retrieved March 23, 2022,
from https://www.governing.com/archive/gov-fair-value-
accounting.html
