Fair value accounting is essentially what an asset is priced at based
on the current economy and market. This is different than cost
accounting which is the cost of the asset you are purchasing or
selling at the time the transaction occurs. Fair value accounting is
facing a lot of scrutiny for past economic downturns as the people
who utilize this type of accounting can price things unfairly. When
the economy is trending down a bank can purchase a piece of land
for cheap and then wait for the economy is raising to list this land at
a much higher rate. It can be used to trick investors into thinking
they are working with a very profitable company when in actuality
the company is changing the price to a new market value to increase
profits. The article I read explains that some companies use fair value
marketing to actualize profits sooner for the company and these can
be turned into bonuses for members of the company. I do agree with
the author that this type of accounting can harm the economy and is
utilized mostly by companies that want to try and look at profitable
as possible as fast as possible. I personally would prefer cost
accounting, because it is more accurate when looking at profits. It
shows a more clear picture of what an asset is worth and leaves a
clear trail of how the helps or harms your company.
https://hbr.org/2013/03/why-fair-value-is-the-rule
