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Fair Presentation---an Ethical Perspective on Fair Value Accounting Pursuant to the Sec Study on Mark-to-Market Accounting

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Fair Presentation---an Ethical Perspective on Fair Value Accounting Pursuant to the Sec Study on Mark-to-Market Accounting
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FAIR PRESENTATION---AN ETHICAL PERSPECTIVE ON FAIR VALUE ACCOUNTING PURSUANT TO THE SEC STUDY ON MARK-TO-MARKET ACCOUNTING
Sharon S. Seay, Macon State College Wilhelmina H. Ford, Macon State College
ABSTRACT Fair value accounting has received a significant amount of blame as the cause of the current financial crisis. Fair value accounting does not cause illiquidity or volatility in financial markets. Banks, rather than accounting, caused the existing crisis, ultimately through bad lending decisions and inadequate risk management. Accounting rules are designed to reveal the full extent of losses and future risks. This transparency would enable banks, regulators, and government to identify specific sources of the crisis and take steps toward recovery and future prevention. Shooting the accounting messenger is not a solution to the problem. Perhaps confusion exists regarding the conflict between transparency and financial stability. Transparency is an objective of accounting standards. Long term stability is best achieved by restoring investor confidence in financial markets and assets. Transparent accounting standards and sound auditing provide support for that confidence. Evidence from the recently released SEC study on mark-to-market accounting supports fair value as the most relevant measurement attribute for financial instruments. Suspension of fair value in favor of alternative cost-based measures would mask losses in value, mislead investors, and diminish investor confidence. From an ethical perspective, accounting has a responsibility to see that financial statements are fairly presented---reflect economic reality. Accountants and auditors are ethical detectives holding businesses to ethical standards of honesty, completeness, neutrality, and representational faithfulness. Accountants and auditors are bound by their professional code of conduct to protect the public interest. So grounded, accounting is the provider of one of the essential checks and


Bibliography: Adler, Joe (2009), “A Rewrite For Write-Downs,” Mergers and Acquisitions Report, 3. Journal of Legal, Ethical and Regulatory Issues, Volume 13, Number 1, 2010 65 Aristotle (1980), The Nicomachean Ethics, Oxford UP, Oxford. Blankfein, Lloyd (2009), “Goldman’s Blankfein http://www.bloomberg.com/apps/news/02/09/09. Wants Mark-to-Market Rule to Stay,” De Boer, H Tra ns pa re nc y, ” Journal of Legal, Ethical and Regulatory Issues, Volume 13, Number 1, 2010 66 Mcdonald, Oonagh (2009), “Not Fair Game to Attack Accounting for the Credit Crisis,” Financial Times, London (UK), 18 Journal of Legal, Ethical and Regulatory Issues, Volume 13, Number 1, 2010
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