Fair-Value Accounting and the Financial Crisis

The collapse of the market is as old as the invention of the currency itself. However, as Gillian Tett emphasizes Fool's Gold, "The latest financial crisis stood out because of its size." Economists estimate that the total loss may reach 2.4 trillion dollars, which is not much different from the UK gross domestic product. In their autopsy report, voluntary disasters are often raising the question "Are bankers, regulators, rating agencies overlooking these flaws or not paying attention?" I created a function to find scapegoat and fix it quickly.

Critics are wrong: fair value accounting is a good accounting and we should continue to implement IFRS as planned. The relationship between fair value accounting and the financial crisis is as follows. In the event that the value of a particular asset declines, in market value-based accounting, the financial institution holding the asset must mark the asset as market value, thereby recognizing the loss. That loss eroded the capital. To support that capital, it may have to sell these assets. This caused sales to further lower the market price and triggered this cycle again. The logic of discussion is, first of all, a mistake. Contrary to the general idea, in accounting rules, companies are not required to display assets as market prices.

Recently, due to the financial crisis, fair value accounting has been intensely debated. The purpose of this paper is to evaluate and understand the fair value of literature analysis and practice. This document highlights the strengths and weaknesses of fair value measurements. The proposer believes that the fair value can provide timely information reflecting the current financial market situation and that the information provided is reliable. Critics, on the other hand, believe that fair value accounting leads to volatility issues, limited verifiable and reliable information, and economic cyclical trends.

In the early stages of the financial crisis, regulators and politicians focused on accounting standards for measuring fair value of financial instruments in the financial crisis, mainly the International Accounting Standards Board and the Financial Accounting Standards Council. A lot of research has been done and the overwhelming conclusion is that fair value accounting emphasizes financial market turmoil at an early stage, but the fact is that the fact did not lead to a financial crisis . A wealth of foreign products such as composite debt bonds (CDOs), subordinated bonds, etc. are measured by management at fair value or at fair value, resulting in significant volatility recognized in profit or loss.