One of the potential impacts of reporting fair value accounting
would be that financial statements can be compared on an
international level instead of just in the United States. Fair value
accounting could help investors in making a decision about investing
in a company when they seem to be similar, but one is in the United
States and the other is International it would be a better apple to
apple comparison. According to McCollum (2008) “this lack of
information increases estimation uncertainty and raises material
misstatement risk” (pg 14). I would have to agree with this statement
because an estimated is not accurate and so many things can affect
an estimate and to me the financial statements are not correct. As
accountants we are supposed to be reporting what is true and
accurate and how can you do that when you are estimating what the
cost is of an asset.
Things to consider when reporting fair value accounting would be
the economy and looking at the history of the asset how it has
fluctuated in price over the years. I personally do not think that fair
value accounting is a good decision for any business when it comes
to reporting fixed assets. The reason is mainly because you as an
accounting you are reporting what your best educated guess would
be on an asset, I would rather leave that up to the investors to decide
or upper management. Also, by the time I enter my best guess the
economy could crash and then I would feel bad because I reported
false numbers. If a company does choose to use fair value
accounting, then I think there should be a separate Balance Sheet
similar to a proforma and financial notes explaining in detail how the
fixed asset numbers are figured out and the value was chosen.
Accurate and true financial statements along with detailed financial
notes would be the most valuable information to management,
lenders and investors, without that they can not make informed
decisions. Managers for the most part know the day to day activities,
but lenders and investors do not know the day to day activities so
having accurate financial statements with notes helps everyone
understand the health of a business. I always tell my clients to give
me all the information they can as they can never provide to much, I
would rather make an educated guess than an assumption because of
missing information.
References
McCollum, T. (2008). Fair Value Under Fire. Internal Auditor, 65(6),
13–14.
