EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE FEBRUARY 2014 EDITION.

Over the past few years one of the dominant hot topics in investment analysis has been fair value accounting.  After the credit crisis, there was a call by some to require fair value accounting for financial instruments.  The issue of the appropriateness of fair value accounting exists in many other industries, including the timber industry.  So which model is preferable – historical cost or fair value?  This illustrates some of the issues accounting standard setters face in evaluating between historical cost and fair value accounting models. Besides highlighting the difficulties in standard setting, it also points to the need of investors to voice their views and make their imprint on future accounting standard setting.

Janet Pegg, CPA, is the Head of Valuation & Accounting at Cornerstone Capital Inc. and former Managing Director and Analyst of U.S. Accounting Research at UBS Investment.