Fair Value: Bumpy Road From Theory To Practice.

First of three parts

To its critics, fair-value accounting is far from fair and has only a casual relationship with value. To its supporters, fair-value accounting is a logical response to innovative and complex financial markets that have outstripped traditional valuation methods.

Though it has long been a passionate topic among accounting practitioners, academics, and corporate financial officers, the larger investing public has thankfully been spared the details of the debate. But that's changing.

Early this year several companies - most of them banks, investment banks, and insurers - adopted the clearest articulation yet of fair value by the Financial Accounting Standards Board. Hopes for an easy transition to the new standard have run hard against some of the worst market conditions in recent memory, turning what might have been a clinical application of the new model into a messy tangle that has undermined the credibility of those struggling to implement it and pushed the debate about accounting methods out of the corporate controller's office and into the marketplace. Even the president of the United States is weighing in on how banking companies should recognize their losses, and the Securities and Exchange Commission has launched an investigation of securities valuation by dealer banks.

Questioning the reliability of banks' financial statements is …