Fair Value Accounting: The Use Of Fair Value Accounting

Within the next few years, the most important accounting issue that needs to be resolved is in regards to the use of fair value accounting. There is a great divide between historic and fair value accounting and there are many pro’s and con’s to each side, but to which method would be the best to fairly state the actual and true cost of something. The current issue with fair value is the valuation process of some items; most notably one would point out level three assets/liabilities. Levels one and two can be easily determined by looking to the market for guidance and there are identical and observable assets/liabilities to compare these to. Therefore, those items are valued immediately and correctly. But when you get to a level three asset/liability, it is up to the preparers “best judgment” to put a value on that item. This valuation cannot be found using observable similar inputs on the market since they can be unique and hard to compare to other assets/liabilities such as a building. At this point, the judgment of the preparer can be either over or under, and this amount could be ...