'Fair values good, historical costs bad' (after Orwell; Animal Farm) Essay

'Fair values good, historical costs bad' (after Orwell; Animal Farm). Discuss - Essay Example Have the bean-counters tired of numbers? What in the balance sheet’s name is happening? The simple reason for the new mantra is that the accounting profession has decided on a new set of standards for the valuation of assets. Perhaps never before in accounting history has an issue generated such controversy as the debate between fair value and historical cost, which is reaching mythic proportions as a battle between good and evil. The accounting profession is one of the pillars of capitalism, a great invention of the modern era because it allows for transparency, fairness, and trust in the conduct of business (Johnson, 1975). Without accounting standards, it would have been impossible for the world of business to have gone as far as it has, simply because we would not have many of the aspects of business that we now take for granted. Valuation of corporate shares, borrowing and lending of funds, capitalisation of assets, and even pricing of products and services would have been problematic, as it was in the early days of business when the words caveat emptor (Buyer Beware!) was the norm. In addition, it is easier to calculate profit and loss and to price risk because accountants have agreed on generally accepted accounting practice. Investors are better informed, owners of corporations can sleep better at night, and millions of workers can get instant feedback on their collective performance thanks to the accounting standards that help establish share prices, cash flows, and liquidity, giving each stakeholder a clearer picture of its position. Accounting reports have come a long way in the last hundred years as to report the true position of a company’s accounts, but as recent events have made clear, notably the scandals associated with formerly high-flying companies Enron and WorldCom in the U.S., accounting standards need to be continuously and carefully defined