What is “Fair Value”? An In-Class Exercise for Accounting Students Using the Case of Zoo Doo

Elise Boyas


Recently, there has been a progression toward the use of fair values to value balance sheet items. Both accounting professionals and accounting academics have been debating the benefits of this trend, particularly given the uncertainly and variation in the measurement of fair values.  Students have become comfortable using the term ‘fair value’, but examples and problems in textbooks assume the fair value is known, thus giving students a false impression regarding the ease of developing fair values.  Students may not fully understand the array of measures that the term ‘fair value’ encompasses or the uncertainty surrounding many of these measurements.

This paper describes an in-class exercise developed for use in a graduate level accounting research course for masters of accounting students.  The goals of the assignment are to (1) introduce students to the controversy surrounding the move toward fair values, (2) help students understand how difficult it is to place a current or fair value on an asset or liability especially when there is not an active market, and (3) encourage critical thinking and creativity as students collaborate to develop a methodology to value a balance sheet asset.  The exercise helps students understand the challenges of fair valuing assets, knowledge they can take with them into their careers as practicing accountants.

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