A. The prospective criticism of Fair Value Measurement
1. Analysis of nature of Fair Value Measurement
The implement basis of SFAS157 is in an efficient market. Its hierarchy of fair value measurement confirms the priority of market price for the same or similar position. But under the credit crisis, entity will expect to reverse the unrealized losses partially at present or totally in the future. Based on this assumption, some entities preferred to report amortized costs or level 3 mark-to-model fair values, arguing that level 2 mark-to–market fair values will raise larger unrealized losses. 
In an illiquidity market, the impairment of assets caused potential risk of system and ...view middle of the document...
In brief, if one company, due to its own factor, sells its poor liquidity assets at a discount, all companies holding similar products may reduce their value of assets based on this discounting price, resulting in a vicious circle of impairment. Thus, mark-to-market is difficult to reflect the real fair value of financial instruments which have no active market. mark-to-market needs a market which can discovery potential value, rather than one exists much speculation and blindness.
3. The deficiency of mark-to-model valuation
The prime information for mark-to-model valuation is from market while unreliable internal information gives many profit manipulation opportunities for entity to calculate with models. However, as mentioned before, information from market is not fair and reliable. So, under present accounting system and in present market, no source of information is the most practicable to realize the fair value measurement.
Because of the creativity and complexity of financial instrument calculated by the mark-to-model valuation, most investors rely on the report from bond rating agencies for options. But under the credit crisis, even the most authoritative rating agencies continually lower the venture capital rating of various financial instruments and negate previous judgement, so do the issuers of financial products who created the models.
In the trend of financial globalization, any small turbulence will initiate Butterfly Effect. This follows the difficulty in overall forecasting and estimation of derivatives measurement. Thus, deviation of fair value measurement exists unless there is a perfect valuation models.
B. The prospect of Fair Value Measurement
Considering the above deficiencies, does it mean that Fair Value Accounting should be abolished when measuring the...