Fair value accounting is defined as “the practice of calculating the
value of a company’s assets and liabilities based on the current
market value” (Cooper, 2021). There are many controversies with
this method of accounting though. While it does offer a value that is
at the highest price in the current market value, this does not help
businesses when the market is continuously fluctuating.
As explained in the Fair Market Value Under Fire article by
McCollum, during 2008 there was a global financial crisis, and this
forced banks and other businesses to assess assets at a value that
had severely decreased during the current market value. However,
there were many that argued that this was indeed a beneficial
accounting method because it provided a realistic assessment of
assets value.
This makes it hard for businesses though with products that fluctuate
multiple times a year though. It gives irrational data pertaining to
long-term and short-term gains or losses (Gaille, 2015). The
argument though is that this shows a realistic picture to investors
and lenders. It gives them an accurate picture of how these
businesses fluctuate in value. However, you never know when
aspects in the economy will change because it happens all the time. I
believe it is important for businesses, lenders, investors etc. to be
aware of the fluctuations that are going on with the assets that a
company holds.
References:
Cooper, K. (2021, October 5). What is fair value accounting? The
Balance. Retrieved April 21, 2022,
from https://www.thebalance.com/what-is-fair-value-accounting-
5204601
Gaille, B. (2015, June 9). 8 Fair Value Accounting Pros and Cons.
BrandonGaille.com. Retrieved April 21, 2022,
from https://brandongaille.com/8-fair-value-accounting-pros-and-
cons/
McCollum, T. (2008). Fair Value Under Fire. Internal Auditor, 65(6),
13–14.
