The problem lies in the procyclical nature of the standard and the difficulty in valuing financial instruments when markets are illiquid or in distressed conditions. Although fair value may increase transparency of the company accounts, it may not always reflect the true intrinsic value in both upswings and under excessively stressed market conditions.
There is a need to distinguish the basic financial and prudential analysis from a purely “financial” accounting framework. There is also need to clearly appreciate that the accounting reporting has a role as a source of information and as such will indicate the value of the company at the moment of the statement of accounts.