Assets Details

“Measurement in accounting is a complex area. Measurement issues generally, and in particular the use of fair value measurement, have contributed to the current Global Financial Crisis” Discuss.

Introduction:

The recent financial crisis caused by subprime crisis has brought the government and private sector on the toes to reconsider and revamp the policies, business model and management practices. The critics has again raised the question on the accounting sanctity, risk management and disclosures of the banks, financial institutions and corporate. So the discussion of Fair Value Accounting is very much in the air.

Fair Value Issues:

Accounting Standards are very much crucial and measures the income, cash flows and convey information to public.

The revision of the accounting standards often call for the Fair Value Accounting. The debate of the practicality and the feasibility of the merit of FVA is also in the air.

As believed by some of the some of the expert, in the debate of Historical cost vs Market Value Fair Vale Accounting is the oldest in accounting.

Contribution of Fair Value Accounting to Global Financial Crisis:

Though it is not conclusive to relate the role of FVA to Global Financial Crisis because it is premature to rely on it totally because insufficient data and information. Nevertheless relying on the previous data, it is somewhat possible to sketch some inference with the crisis.

Volatility of Financial results:

Majority of the research reflect that the adoption of the FVA lead to the more volatility of the financial results. This volatility has brought made contribution to raise the amplifying perception to the investors, regulators and government to the gravity of the crisis. The decline in the reported earning in the current year to the previous year substantiate the above points as the FVA drops earning of the current year and inflate the earning of previous year.

We present here two example that illustrate the...