A recent survey provides more evidence that market turmoil has given fair-value accounting a big reputation problem to overcome.

It’s not just that fair value is harder to establish when folks aren’t buying, according to Valuation Research Corp., which conducted the poll of financial professionals. Some 58 percent of respondents say fair values are flawed and invalid when no one’s buying. Of those, 34 percent say it might be a good idea to revert to historical cost accounting as an alternative.

As the economic crisis reached fever pitch, banks in particular bemoaned fair-value requirements, saying depressed current prices didn’t reflect long-term plans to hold assets that no one was buying immediately. Investors and analysts, however, generally say fair value provides the most relevant, current insight into an entity's financial state at a given point in time, which facilitates investment decision making.

“When you’re relying on the market, but the market may not be so reliable, it’s hard to show the impact of that in the financial statements or to do impairments studies based on market-based input,” said P.J. Patel, senior vice president of VRC.

The survey results suggest finance professionals are circumspect about the capability of publicly traded banks to reasonably estimate values for their own hard-to-value financial assets, such as those that are not publicly traded and don’t have easily accessible values. Some 44 percent believed the bank values were within an accuracy of 10 percent while another 40 percent thought values were as much as 30 percent off base.

Hedge fund and private equity valuations for hard-to-value assets were even further off, respondents said; 36 percent believed they were accurate within 10 percent and 49 percent said they were up to 30 percent off the mark.

Nearly one-third of respondents said they revised their projections based on interaction with external auditors, changing purchase allocation projections, revising goodwill impairment projections or revising fair-value estimates.

Patel said the raging debate over fair value through market chaos serves as a reminder of how market pricing works. “The market may not be correct on any given day, but over the long run it does tend to be correct,” he said. “In short-term periods, you can have extreme levels of volatility. In the short run the market may not be the best indicator of value.”