Western Michigan university | Is It Fair to Blame Fair Value Accounting for the Financial Crisis? | By Robert C. Pozen | | Luma Raha | 10/12/2011 | The article from the Harvard Business Review‚ "Is it Fair to Blame Fair Value Accounting for the Financial Crisis?" ‚ author Robert Pozen stipulates that the fair value accounting principles did not cause the financial crisis of 2008‚ but certainly aggravated it by common misconceptions about accounting standards. The article defines mark-to-market
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Moving towards Fair Value Accounting In the past‚ historical cost measures were mainly used for reporting as they are reliable. However‚ historical cost is only relevant upon acquiring the asset and becomes irrelevant as time passes. On the other hand‚ fair value-based reporting‚ which accounts for changes in fair values‚ can produce balance sheet figures that provide a better reflection of the company’s value. This is also why accounting bodies are moving towards fair value accounting (FVA). One
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Recently‚ fair value accounting suffers heated debate because the financial crisis. The purpose of this article is to evaluate and understand fair value both in literature analysis and practice. This paper emphasizes the advantages and disadvantages of the fair value measurement. Proponents believe that fair value can provide timely information that reflects current financial market conditions‚ and information supplied is reliable. On the other hand‚ critics argue that fair value accounting results
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Fair Value Accounting Select the archived issue you wish to view: Standards Fair Value Accounting Fair value accounting contains a superior basis for financial reporting than the outdated historical cost model. FROM: SEP-OCT 2005 ISSUE | BY HAN DONKER In recent years‚ international standard setters and regulators such as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have begun
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Subprime crisis Introduction The subprime crisis is one of the biggest disasters of the financial system. It originated in the US subprime mortgage market in 2006 and within a year it engulfed the financial sector of USA along with numerous mature economies. The weaker income groups comprising the Afro-Americans and the Hispanics suffered home losses. It is projected that the number of subprime foreclosures will reach 2 million‚ if measures are not taken to resolve the crisis
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Fair value accounting Type of accounting that companies measure & report certain assets and liabilities at prices the company would receive if they sold them and liabilities are reported at the value the company would receive if they were relieved of them. The purpose of this method is for creating realistic financial statements. Advantages of Fair Value Accounting Reduced Net Income when values of assets decrease‚ the company’s calculated net income decreases. lower net income results in
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Professor Bruce Nuffer 3/13/2011 The subprime mortgage crisis in the U.S The argument over who should be at fault for the subprime mortgage crisis and housing market collapse in the United States has been a heated debate. Even though home foreclosure keeps rising‚ there should be some accountability for the economic meltdown resulting from the subprime mortgage situation. Should we blame banking institutions‚ mortgage lenders‚ brokers‚ and investors for this crisis? Should minorities be blamed for
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role did the Accounting profession play in the recent sub prime mortgage crisis? What could they have done differently? What is a subprime loan? Subprime loans are unconventional loans designed to put as many people as possible in a home or to refinance an existing home regardless of the borrowers’ credit history. A subprime loan allows lenders to make loans whether or not the borrower has poor credit‚ no credit or even a very low Fair Isaac Corporation (FICO) score. Basically‚ subprime loans are
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RESUMEN EJECUTIVO La crisis sub-prime tiene su origen en EE.UU.‚ más específicamente en el sector inmobiliario. Las instituciones financieras aprovechando la baja tasa de interés‚ la liquidez del mercado‚ el boom inmobiliario‚ etc. otorgaron créditos hipotecarios a individuos con baja o mala calificación crediticia. Esto mirado positivamente fue bueno‚ ya que permitió el acceso a la vivienda propia a muchas personas que bajo otras circunstancias hubiera sido imposible de obtenerla. El mercado
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What is Fair Value Accounting? An alternative approach to measurement that seeks to capture changes in asset and liability values over time. The International Accounting Standards Board (IASB) defines fair value as "... an amount at which an asset could be exchanged between knowledgeable and willing parties in an arms length transaction". Under the fair value measurement approach‚ assets and liabilities are re-measured periodically to reflect changes in their value‚ with the resulting change impacting
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