An accountant invokes the world of hoops to disparage fair-value purchase accounting.
Marie Leone, CFO.com | US
March 4, 2008
I'm no expert at all, but some of the concerns should be addressed by auditors. Concerns related to undervaluation of inventory and A/R should easily be picked up through subsequent event testing. If the inventory or A/R in question truly has value then chances are that value will be realized shortly after the purchase. Auditors should be testing for that at year-end and quarter-end as standard practice.
Posted by John Wielgolinski | March 05, 2008 12:18 pm
Fair Value to whom? Fair Value only has application to a seller or buyer or investor only at the time of acquiring. It is a measure by the participant at the transaction point not by detached apprasiers/accountants trying to be all to all! The disclosure of historical is data more valuable to seller,buyer or investor than hypothetical data because the historical data is the basis for future income/cash flows as well as deleting redundancies.
Posted by Milton Bulloch | March 05, 2008 10:46 am
I've a couple of references that put forth the statement that: "Historical Cost Accounting Historical accounting replaced fair value accounting during the 1930s post Great Depression period. This was replaced since the values had been overstated by certain companies. The principles of historical cost accounting came into being post Wall Street Crash which took place in 1929 along with the assumption of stable currency. " see: http://www.economywatch.com/inflation/accounting.html Also http://www.qf.nthu.edu.tw/~jtyang/Teaching/Risk_management/Notes/A8.pdf Note slide titled "Background II" on page 5 of the above referenced PDF. I'm having trouble finding the source information from which these observations were gathered. I welcome any help that can be provided.
Posted by Charles Smith | March 05, 2008 10:23 am
If it wasn't hard enough to measure and value balance sheets, this has made that even more ridiculous for investors to rely upon for good information than ever before. "What were they thinking"? It is a nightmare to deal with for accountants and leaves the door wide open to games with the numbers for the unscrupulous. It isn't "fair" to anyone having to deal with it.
Posted by Jim Christie | March 05, 2008 10:13 am© CFO Publishing Corporation 2009. All rights reserved.