9/23/2007: Accounting Professors on fair-value accounting

Excerpt from Pursuit of convergence is coming at too high a cost
By Stella Fearnley, Professor of Accounting at Bournemouth University and Shyam Sunder, J. L. Frank Professor of Accounting, Economics and Finance at Yale School of Management

The problem is that [fair value accounting] assumes markets have good information from inputs such as financial reports and credit ratings. But there is a circularity built in: if credit raters and investors get their information from accounting numbers, which are themselves based on prices inflated by a market bubble, the accounting numbers support the bubble.
So instead of informing markets through prudent valuation and controlling management excess, "fair" values feed the prices back to the market.