I have given Fair Value Accounting some thought and here is what I
have come to. I’m sure as I learn more information I will be able to
form more opinions, but here is what I believe now: Fair Value is
great in theory, to ensure that if the value of an asset or investment
goes up or down, that is shown in the accounting process. I think
that if done properly, it could be a good way of doing things,
however, I believe that the way that these numbers are recorded
opens up a lot of room for error or corruption.
There are many things to be considered in regard to fair value
accounting, namely, how do the accounting records need to be
recorded? Is the method what is useful in the company and what
they do? The best decision for a company is how they can ensure the
most straight-forward, concise way to relay the financial information,
for management, as well as, for investors.
The most valuable thing for management, lenders, and investors as it
relates to fair value is the knowledge that the info is current, up to
date, and accurate. In fair value, having something in the market to
actually compare to ensure an actual “fair value” estimate. The fear is
that the system will be taken advantage of and used to maximize
profits while not showing the current information that would lead to
inaccurate reporting of information.
As I said above, in theory, it could work and would be a valuable
resource for valuing assets and investments, however it is a
complicated process that could lead to some major problems.
