Fair value accounting deserves more scrutiny

ON the surface, fair value accounting sounds like yet another esoteric financial topic. Yet, it has the potential to cause much pain to ordinary people should an economic downturn or crisis occur.

Take, for example, a real estate investment trust (Reit). Reits are popular investments for retirees who desire a passive flow of income. They allow ordinary people to own a slice of large commercial properties and enjoy a stream of rental income.

One of the indicators used to value a Reit is its price relative to its net asset value. However, net asset value goes up or d…