Fair Value Accounting and Financial Crisis

Fair value accounting and financial crisis

Author: Christina Shan Date: 10 May 2010

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Table of Contents

Abstract .......................................................................................................3 Introduction .................................................................................................4 Part A: The role of fair value accounting in providing useful information for economic decision making. .....................................................4 Part B: The limitations of fair value accounting.........................................7 Part C: Application of fair value accounting ............................................12 Conclusion ................................................................................................15 Reference ..................................................................................................15

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Abstract

Nowadays, there is a big controversy about whether the fair value accounting should be blamed for the global financial crisis. The purpose of this report is to explore the role of fair value accounting in economic decision making and the limitations of it and identifying the areas of the financial statements of two Australian companies – ANZ and South East Water - to which fair value accounting being applied. The information used in this report is obtained from academic researches, Internet and the annual reports of ANZ and South East Water.

It is found out from this essay that despite fair value accounting is significant in making economic decision by the users of financial reports, there are a range of limitations of fair value accounting which may have contributed to the deterioration of the financial crisis, but this measurement tool should still be retained.

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Introduction

The purpose of the essay is to explore the role fair value accounting played in the financial distress. The essay aims to achieve the following objectives. First, the...