Revisit the article Fair Value Under Fire and consider other resources used throughout the course. Discuss the potential impacts of fair value within the professional field. What should be considered in regard to fair value accounting and whether it is the best decision for the company? What information would be most valuable to management, lenders, and investors as it relates to fair value or other concepts covered in the course?
The article I chose is by Andrews (2019), where he makes a case for using fair value accounting and addresses criticism against the practice. The author’s main point is that fair value accounting is superior to historical cost accounting because it provides reliable and relevant information to investors and users of financial statements. Furthermore, the author explains that fair value accounting accurately captures the current asset value depending on the expected future income. As a result, it is more informative and dynamic; in contrast, historical cost accounting records the original cost and depreciates it over time.
Although Andrews (2019) offers a comprehensive case for fair value accounting, I am afraid I have to disagree with the views presented in the article. I acknowledge the benefits of using fair value accounting; however, it is impossible to overcome the fact that it introduces subjectivity into financial reporting. Accounting is about sticking to factual information and data; without this foundation, the values are susceptible to manipulation and can be influenced depending on different agendas. Furthermore, the introduction of subjectivity means that the information can be misleading.
The implication for companies is that since fair value accounting is currently fashionable, they will be pressured to adopt the standards to attract investors. Andrews (2019) believes that companies adopting fair value accounting will increase transparency and provide up-to-date information. As a user of financial statements, I prefer to see historical cost accounting because it is objective and offers a solid foundation for financial reporting. It offers a comprehensive overview of a company’s position without inflating or manipulating the numbers.
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