Sarah Johnson, CFO.com | US
October 12, 2009

Ancient history

In ancient history, back when I was going to school, there was a recognition that historical cost accounting, and lower of cost or market valuation, did not provide the information that people wanted. Fair value concepts were touted and took hold.

Some managements abused the lack of write up of values by selling assets that had greatly appreciated (often real property, sometimes a company's crown jewels) and booking large accounting gains, quite often to the detriment of the shareholders. This fed the fire for fair value accounting.

Now people don't like fair value accounting. It's pro-cyclical they say, helping drive lower lows and higher highs.

Yes it does. It makes way for smart managers to pick up bargains from those who are simply driven by reported earnings and those who don't take steps ahead of time to prepare for a downturn.

Accounting should be about telling it as it is, not telling a nice story, not about social smoothness, and not about making people happy. Let the public relations people do that.

Posted by Roland Cycan | Oct 19, 2009 10:42 AM ET

FAIR VALUE DEBATE ENDLESS

The debate appears endless and arduous. When you attempt to make estimates certain in an uncertain world and you require auditors and inspectors to be ever skeptical, what will be left for experts in fair value modeling and how should they be relied upon?

Posted by Method Kashonda | Oct 19, 2009 7:48 AM ET

fv

What an idiot! Fair value is much better information than cost-basis reporting. Where were you and your talking-points comments in 1993 when FAS 115 was issued? It required fair value for all debt securities and all publicly traded equities.

Posted by stan musical | Oct 13, 2009 8:35 PM ET

Fair Value = Speculative Value

The repeal of the Glass-Steagall Act in 1999 set the stage for last year's financial crisis. It was followed by the Commodity Futures Modernization Act in 2000. In our effort to appease international globalists, fair value or mark-to-market was introduced in 2006.

Market-to-market puts all financial statements into the realm of speculative caluations. All one has to do is look at the damage appraised valuations did to the residential real estate mortgage business.

Recording assets and liabilities at the historical lower of cost or market keeps financial statements in the realm of reality. The speculative hockey stick chart party ended. The PCAOB needs to recognize and learn from its mistakes by reversing the CPA's involvement with certifying market values.

Mark-to-market breeds a group of monothought buyers, but fails to require profitable selling. We are now seeing the boom and bust economy facilitated by mark-to-market accounting.

Mangement can disclose market value estimates in the disclosures without requiring to report fiction in its financial statements.

Posted by Joe Jefferis | Oct 13, 2009 10:20 AM ET