Fair Value Accounting and Proton disposal of MV Agusta at one Euro

Malaysia's national car manufacturer Proton has bought a motorcycle manufacturer at 70 million Euro (RM315 million). Under the newly implemented Fair Value Accounting. The investment have RM Nil fair value and thus, Proton has write off the investment at the last quarter result.

I do not feel a motorcycle manufacturer has a synergy with car manufacturer. Thus, I do not agree Proton purchase of MV Agusta in the first place. ( The money can be used to acquire a business that have synergy like Mitsubishi)

Advantages or disadvantages of Fair Value Accounting

However, by disposing MV Agusta at nominal sum of one Euro. It appear that the company has taken the easy way out without explore the brand value of the company as claim by open letter by Mahathir and Mahaleel.

Fair Value Accounting might be good to financial market. As Proton shares prices increase after the announcement of the disposal.

However, Fair Value Accounting also fail to reflect a Loss on Disposal of Investment amounting to more than RM315 to RM500 million by the company. Which the old Accounting Standard do.

Under Fair Value Accounting, such loss only reflected on Management Account if the management keep one. I doubt the Proton management keep a management Accounts. Even if they do, Management Accounts do not have a Standard like financial accounts.

The open letter stated that the debt would not realize in 3 years. However, the management choose not to make used of the 3 years to maximize the disposal price of MV Agusta.

Clearly, Fair Value Accounting promote shortermism. It emphasis on short term result of the company rather than long term plan of the company in performance measurement and decision making.

Fair Value Accounting Vs Inflation Accounting

During 1970 when inflation rate was high cause by high petroleum price. Accounting fraternity has introduce a Standard base on what they call Inflation Accounting to reflect the drop in purchase power. However, few people in accounting profession really understand the figure, not to mention layman on the street. It is an Accounting Standard but few company follow and prepare another set of Inflation Accounting.

Would Fair Value Accounting has the same fate of Inflation Acounting is yet to be tested

Too earlier of harmonization

Fair Value Accounting is new even on international basis. We have not seen the impact, precedence, weakness of such accounting standard implemented in other country. Are we too early to jump into the bandwagon?


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