Fair value accounting has long been a controversial issue. Many
believe that fair value accounting has made matters worse by forcing
banks and other businesses to assess the value of assets at current
market rates, which have plummeted in the past year. Fair value
accounting uses current market values as the basis for recognizing
certain assets and liabilities. Fair value is the estimated price at which
an asset can be sold or a liability settled in an orderly transaction to a
third party under current market conditions (Bragg, n.d.). Financial
accounting is crucial for investors and lenders to assess the solvency
of businesses. Financial accounting also provides transparency and
access to information concerning the operations of a company (How
Do Investors and Lenders Benefit from Financial Accounting?, 2019).
Financial accounting allows outside actors to observe the profitability
and value of a business. An investor can see which companies have
consistently performed well, paid dividends, and appear to have
positive margins. A lender can review the financial accounts to assess
liquidity, cash flow, leverage, and overall solvency.
Bragg, S. (n.d.). Fair value accounting. AccountingTools. Retrieved
April 19, 2022, from https://www.accountingtools.com/articles/fair-
value-accounting.html#:~:text=Fair%20value%20accounting%20uses
%20current
.
How do investors and lenders benefit from financial accounting? (2019).
Investopedia. https://www.investopedia.com/ask/answers/041015/
how-do-investors-and-lenders-benefit-financial-accounting.asp
.
