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Disadvantages of fair value accounting in details.

Disadvantages of fair value accounting in details.
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Disadvantages of fair value accounting -

(1) - Excessive income volatility -

One of the most serious concerns from adopting the fair value accounting is that of excessive income volatility.

(2) - Susceptibility to manipulation -

Fair value accounting would considerably increase the ability of managers to manipulate financial statements.

(3) - Value Reversal -

Fair value accounting can also present challenges to companies and users of reported financial information. Conditions of the markets in which certain assets and liabilities are traded may fluctuate often and even become volatile at times.

(4) - Misleading Information -

It is possible that sometimes the observed value of an asset in the market is not indicative of the asset’s fundamental value.

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