Fair value accounting is highly controversial in the accounting world,
and for good reason. Many believe it to be a contributing factor to
the global financial crisis, and it is made worse by banks being forced
to value assets at current, rapidly decreasing market values. Fair
value accounting lacks information, which increases uncertainty and
increases the risk of material misstatement. This creates issues
during financial reporting. I agree with the article, where it was
stated that there are too many varying methods of financial
reporting; to ensure consistency, there should be a uniform method.
When determining whether fair value accounting is the right choice
for a company, the current market should be considered first. Assets
can be grossly misvalued if the economic state is out of whack; the
current housing market is a great example of that. It would be useful
for management, lenders and investors for the historical value of an
asset. This provides a more accurate, well-rounded picture of an
asset’s worth since its acquisition.
