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Fair value accounting and the global financial crisis -what is the role of fair value accounting in global financial cri

Fair value accounting and the global financial crisis -what is the role of fair value accounting in global financial crisis?. Luo Jun ID : C61954 20/07/2011. outline. Definition Argument Conclusion Discussion. Definition.

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Fair value accounting and the global financial crisis -what is the role of fair value accounting in global financial cri

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  1. Fair value accounting and the global financial crisis-what is the role of fair value accounting in global financial crisis? Luo Jun ID: C61954 20/07/2011

  2. outline • Definition • Argument • Conclusion • Discussion

  3. Definition • The global financial crisis is also called the subprime mortgage crisis which was characterized by extreme volatility in financial markets as well as by the failure or quasi failure of many financial institutions such as Bear Stearns, Lehman Brothers, AIG, Merrill Lynch, Citicorp, Royal Bank of Scotland, and Dexia.

  4. Definition • the price that would be received to sell an asset or paid to transfer a liability in transactions between market participants at the measurement date.

  5. Cause • Brothers, AIG, Merrill Lynch, Citicorp, Royal Bank of Scotland, and Dexia.(Magnan 2008) The reasons for global financial crisis are excessive use of derivatives, lack of oversight, low rates in the Federal Reserve System and a housing bubble in the USA

  6. Arguement • whether the fair value accounting is responsible for the financial crisis or not which happened between 2007 and 2010

  7. Argument • fair value accounting as opposed to historical cost accounting has nothing to do with the global financial crisis.

  8. Argument • fair value accounting has resulted in the turmoil in the financial markets in the global financial crisis between 2007 and 2010

  9. Argument • the low efficiency of financial institution in reporting financial assets and liabilities accurately, which was caused by the use of fair value accounting standards.

  10. Conclusion • As a rule of accounting standards, fair value accounting provides better insights to current risk as a role of messenger.

  11. Conclusion • it is responsible for the turmoil in the financial market as a role of contributor for six reasons which might have magnified the global financial crisis between 2007 and 2010

  12. Conclusion • fair value accounting is responsible for the financial crisis

  13. Discussion • Do you think the Global financial crisis could be avoided?

  14. Reference • Hawkes,A. March 2007. Fair Value Sparks IFRS Fatigue, Accountancy Age, Mar • 15,2007,8 • Cochrane, J. H. (2009). Lessons from the Financial Crisis. Regulation, 32(4), 34-37. • Hemmer, T. (2008). Discussion of marking-to-market: panacea or pandora's box? Journal of accounting research, 46(2), 461-466. • Magnan, M. L. (2009). Fair Value Accounting and the Financial Crisis: Messenger or Contributor? Concordia University, 8(3), 189-213. • Mario Christodoulou. US Fair Value Rules Complicate Convergence, Warns Turner. Accounting Age,Jan 2010,1 • Mitonides, D. A. (2009). A Failure of Accounting Standards in the Credit Crisis. Canadian Manager, 33(3), 26-27. • Suikhraj,P. Credit Crunch Sparks Fair Value Revolt. Accounting Age. April 2008.3 • Suikhraj,P. Smoothed Assets Dismissed as a 'worse answer' to Fair Value, Accountancy Age. April 2008.3.1 • Suetin, A. (2009). Causes of the Current Financial Crisis. Problems of Economic Transition, 52(3), 44-58. • Trussel, J. M., & Rose, L. C. (2009). Fair Value Accounting and the Current Financial Crisis. CPA Journal, 79(6), 26-30. • Véron, N. (2008). Fair Value Accounting is the Wrong Scapegoat for this Crisis. Accounting in Europe, 5(2), 63-69. • Wallace, M. (2008). Is Fair-Value Accounting Responsible for the Financial Crisis? Bank Accounting & Finance (08943958), 22(1), 9-18.

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