Fair Value between Perception and Reality

Abstract

Many of the authors are presenting the advantages of fair value, but there are voices contesting this concept, because of its volatility and the tendency to subjectivism, to the manipulation of used models for evaluation.

Among the advantages of fair value the following must be mentioned: utility, relevance, transparency and superior accuracy of the results and cash-flow of the company, more clearance to financial statements, total accounting of the comparable value and greater liability to the manager.

However, those who criticize fair value accounting do not seem to provide any credible alternatives. Do we go back to historical cost accounting, wherein the financial assets are stated at outdated values and hence are not relevant or reliable? In the current crisis, one of the questions that were raised is: Should assets be marked down to their current throw away prices, as companies may not want to sell them at those values?

This paper analyses the answer to this question, and also various controversial issues of the concept of fair value as it is presented in the current project of the IASB and FASB.