Fair value accounting is an important part of college accounting programs, and it’s easy to see why. Many of today’s organizations—from financial institutions to oil and gas companies to public accounting firms—expect newly hired CPAs to understand the principles behind fair value accounting. Students who are adept at fair value accounting may have an advantage in landing coveted positions as valuation specialists performing fair value assignments, valuation experts assisting audit teams, or consultants either within or outside public accounting.
“Each of the Big Four firms, as well as many other accounting firms, has valuation groups performing fair value assignments for the audit clients of other firms,” said Thomas Ryan, a professor of the practice who designed the valuation courses at the University of Southern California at Los Angeles, where he teaches. “But even beyond that, there is a growing need for auditors to have a greater awareness of this area,” he said, noting that “fair value issues have driven a high percentage of the audit deficiencies found by the PCAOB in each of the recent year’s inspection reports.”
Stephani Mason, CPA, Ph.D., an assistant professor at DePaul University in Chicago, calls teaching fair value accounting “the wave of the future” due, in part, to the increasing globalization of the accounting profession. “In both the United States and internationally, standards are increasingly becoming fair value oriented, and because of that we have to embrace it more in the classroom, even if that’s often difficult,” she said.
Knowing about the principles of fair value accounting could also give an accountant an edge when working with technology companies. Fair value measurement, which came of age as a result of the tech boom of the 1990s, is often a better way than historical accounting to assess the intangible assets like technology, domain names, and customer relationships that so many of today’s companies rely on, said Mark Zyla, CPA, managing director at Acuitas Inc. Zyla has guest lectured on fair value accounting at USC and has taught the AICPA’s Fair Value Workshop.
“Fair value accounting should be a core component of both accounting and finance curricula,” said Mark Smith, lead technical manager with the Forensic and Valuation Services division at the AICPA. “Young professionals in both disciplines come into contact with fair value concepts, and it is critical that they understand those concepts to better help them meet the demands of their jobs.”
Fair value accounting specialists offer the following advice—and resources—for teaching the subject:
Lay the groundwork. Fair value accounting can sometimes be hard for students to grasp since it relies so much on judgment. To make fair value more tangible for students, apply fair value concepts to real-world situations, and illustrate how fair value is determined, Zyla said. Explain, for example, how it’s used in acquisitions and show how it can provide better information for users of financial statements in certain applications.
Mason also recommended the video tutorial Fair Value Accounting from Khan Academy.
Make it tangible. Case studies can make fair value measurement more concrete for students as well. A few suggestions:
- “Snowy Ridge Ski Resort: Fair Value Measurement and the Impairment of Long-Term Assets,” a case study by Richard A. Gore and Paul J. Herz, Issues in Accounting Education—Teaching Notes, February 2010.
- “Introduction to Fair Value,” an introductory module and mini-case study developed by Ervin L. Black for KPMG. Requires a free KPMG University Connection account.
- “Case 11-2(a): Fair Value Hierarchy” and “Case 11-2(b): Fair Value Disclosures,” by Deloitte; appropriate for graduate students.
- “Case 12-9: Rough Waters Ahead,” by Deloitte; appropriate for intermediate or graduate students.
- “Case 13-04: Gator Electronics,” by Deloitte; appropriate for auditing courses and graduate courses that integrate financial reporting and auditing.
Faculty can access the solutions to Deloitte cases by emailing firstname.lastname@example.org.
Invite guest speakers to class. Speakers who can address “contemporaneous regulatory developments” and provide insights into real-world practices help students understand fair value accounting, Ryan noted. Whenever possible, he suggested, invite lecturers from organizations such as the PCAOB, the Securities and Exchange Commission, The Appraisal Foundation, the AICPA, and FASB.
Limit the objectives you hope to achieve in the course. The material that needs to be covered just on the auditing standards side is broad, so faculty will need to carefully choose which subtopics they teach. Ryan advocates providing objectives for each course that touch on several primary areas, including valuation theory and the U.S. GAAP accounting standards.
Students and faculty can access the regulatory requirements online at:
- FASB’s Accounting Standards Codification database (free for students and faculty whose institutions have paid the annual fee; according to Ryan, the most relevant sections include ASC Topics 350, 360, 805, and 820).
- eIFRS Basic (allows free access to standards without explanatory material) or eIFRS Professional (subscription fee, includes explanatory material and greater functionality).
Where to learn more about fair value measurement
If you don’t have a great deal of experience with fair value accounting, or want a refresher, here are a couple of ways to update your knowledge:
- Take one of the AICPA’s Fair Value Measurements workshops, held twice yearly, or its online Fair Value Accounting CPE course.
- Read guides such as PwC’s free Fair Value Measurements, Global Edition, Zyla’s Fair Value Measurement: Practical Guidance and Implementation, or the AICPA’s valuation guides and audit guides (fees apply).