The movement toward the use of fair value for investments has been given the label “mark to market”. Previously, marketable equity securities were valued at the lower of cost or market. The shift to fair value, whether higher or lower than cost, is a significant departure from the past. Even though all investments classified as trading or available for sale are now valued at fair values, only market changes for trading securities affect the income statement. To many accounting theorists, this is indeed a cop-out on the part of the FASB. These accountants reason that if market changes are going to be recognized on the balance sheet, they should be recognized on the income statement as well. This position was held by the two FASB members who voted against the issuance of pre-Codification Statement No 115. This is also the approach taken in the “fair value option” and, as noted in the chapter, is the common-sense approach advocated by Sir David Tweedie, chairman of the IASB.

Evaluate the rationale for this compromise position. What arguments for the two different approaches (income and equity) do you think are most persuasive and why? What future events could cause standards setters to revise this approach?