The Spirit of Accounting: Mythbusters: Values are neither hypothetical nor irrelevant

Continuing a theme, this column is another “Mythbuster” that demonstrates the fallacy behind a couple of longstanding arguments against using values in financial statement reporting.In our prior column, we exploded the myth that an asset’s purchase price is a reliable estimate of its original value. We did this by showing that an asset’s market value is not a single point, but a distribution of amounts observed in a number of actual transactions. Because any particular transaction is a nonrandom sample of only one observation out of a large population, it cannot be relied upon to reflect the asset’s fair value.

SECOND MYTH