Fair value accounting is criticised for not reflecting economic substance, particularly in financial institutions stressed by the credit crunch.

IFRS has been disparagingly referred to as ‘academic’ but many accounting scholars are critical of fair value and the unseemly rush by regulators to adopt IFRS.

The IASB’s mantra of a single set of high quality standards is reminiscent of Edward Lear’s What I Tell You Three Times Is True (The Hunting of the Snark). Yet fair values are anything but fair and high quality is questionable.

Fair value has two fundamental flaws. First, with the method chosen, exit values and their determination cannot be applied in the same way to all items caught by the standards. Price volatility varies across sectors and transactions. Second, there is an underlying assumption that markets are liquid and able to price accurately. This economic theory would only work if markets were not run by people and fraud and greed did not exist.

The fair value model supports bubbles as it picks up prices in a rising market, which are reflected in accounts and feed back into higher prices. Conversely, it exacerbates downturns in a falling market and another set of issues emerge where there is no market.

So what is the way forward? The IASB has, until recently, been intransigent in its belief that nanny knows best and has not demonstrated an inclination to listen. The global standards tanker has been supported in the public policy arena by global companies, large firms and regulators who will benefit from the adoption of global standards, have invested hugely in IFRS, and accept the high quality mantra.

IFRS is being adopted widely but what is it bringing with it? A massive increase in disclosures and complexity; a standard setter with very wide constituency and a consultation model which is self-selecting, thus limiting its accountability and making change difficult; and at least one underlying principle which doesn’t stand up in a stressed market.

Some influential IFRS users are breaking ranks and criticising fair values. The IASC Foundation has recognised that IFRS should be understandable. This is a start but it doesn’t mean that the resultant outputs would be understandable.

We should welcome the slightest glimmer of light ­ but this will be a long haul, if we get there at all.

Stella Fearnley is professor of accounting at Bournemouth University