I think that fair value accounting will always be under fire because it
is quite controversial. It may be perfectly acceptable for one
company to use, but highly unacceptable for another company to
use, depending on the nature of their business and the assets they
own. There are constant changes in the market, as we are seeing
with the over-inflated values of homes and used cars right now. I feel
this could be a bad thing when the market stabilizes again. Hopefully,
it's not as bad as the 2008 financial crisis was.
For a company to have to change their books to account for changes
in the market is also not beneficial. "Obtaining reliable information
relevant to fair value is one of the biggest challenges organizations
and auditors face in the current market. The lack of information
increases estimation uncertainty and raises material misstatement
risk" (McCollum, 2008). I agree with the author that one uniform
method should be used by all, so management and investors feel
confident in the information that is being presented within the values
reported in the financial statements.
In the article, the author states the objectives for a uniform method
should be presented in a manner that:
Portrays a cohesive financial picture
Disaggregates information so that it is useful in predicting cash
flows in the future
Helps users assess liquidity and financial flexibility
I'm just not sure that fair value has a place in this uniform method.
Financial accounting portrays the business in a better manner in my
opinion. In an ever-changing market, it's hard to guarantee the
reliability of the financials when assets are constantly changing in
value, which may or may not really help the particular business that
uses fair value accounting methods. Whereas, financial accounting is
straight-forward and more reliable in the numbers aspect.
McCollum, T. Internal Auditor. Dec2008, Vol. 65 Issue 6, p13-14. 2p. ,
Database: Business Source Complete
