Does Anyone Care About Fair Value Anymore?

Fair value is a simple enough concept even if you aren't an accountant: stuff is worth what you could sell it for in the normal course of business, so that's what you value it as when you're adding up the value of the stuff you have. Easy, right? Not so easy when it comes to convergence.

The IASB has already expressed distaste for our fair value rules (among other things) and Accounting Onion recently shared some concerns that convergence might require a reasonable definition of "High Quality Accountant Standards" (abbreviated HQAS" by AO) agreed upon by both FASB and the IASB. So far I haven't seen it, has anyone else?

Wait, AO launches off into it far more eloquently than I ever could.

Moreover, if there are some doubts as to what HQAS is, the SEC's view could have been attended to more closely at the outset of formal convergence efforts (October 2002); for surely the SEC had convergence in mind when they published their congressionally mandated (see the Sarbanes Oxley Act, Section 108(d)) report on the feasibility of "principles-based" accounting standards in August 2003. According to the SEC, the "objectives-oriented" standards they are looking for from a standard setter should possess the following qualities:

"Be based on an improved and consistently applied conceptual framework;

Clearly state the accounting objective of the standard;

Provide sufficient detail and structure so that the standard can be operationalized and applied on a consistent basis;

Minimize exceptions from the standard;

Avoid use of percentage tests ("bright-lines") that allow financial engineers to achieve technical compliance with the standard while evading the intent of the standard."

Now, seven years later, the SEC's battle plans have been subordinated by the din and desperation of convergence wars. Are any new standards from either board "based on an improved and consistently applied conceptual framework"? Obviously not, for nary a single alteration to any conceptual framework document has occurred in the last seven years. The existing definitions for assets and liabilities are like wooden ships sent to battle against nuclear submarines.

A few weeks back, I talked to David Larsen, CPA, Managing Director of global advising firm Duff & Phelps, LLP about this fair value bullshit that complicates my life by requiring comment every few weeks. David participated on the SEC mark-to-market panel in November of 2008 and serves on FASB's Valuation Resource Group so he's familiar with what I'm talking about.

David believes public opinion dominates the fair value argument and really doesn't see what the big deal is. "The goal is to make financial statements more readable," he said of fair value's ultimate intention. He's a fan of transparency on the face of financial statements and more disclosures. Who doesn't like that?

He says fair value is purely measurement and disclosure, nothing to get upset about.

In my opinion, fair value was our first test to see if we could handle the principles widely used in international accounting "standards" (hopefully "HQAS") before we actually committed to adopting them and we failed. If you wonder why the IASB wants to hold the floor when it comes to convergence, you only have to stare our treatment of fair value right between the eyes.

It should have worked but our "P for Principles" in GAAP didn't adequately prepare us to handle it.

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