During the banking crisis in 2008, many financial institutions blamed their problems on an accounting rule called
Question:
During the banking “crisis” in 2008, many financial institutions blamed their problems on an accounting rule called mark-to-market which essentially requires companies to report certain assets at their market (current) value rather than historical cost (what was paid for the item). Thus, the argument went, since the financial institutions were holding many mortgages that were worthless (the so-called subprime mortgages) and were required to write these assets down (thus reducing both the assets of the financial institutions as well as owners’ equity), it was the accounting rule that caused the financial institutions’ balance sheets to look bad.
Discuss whether you believe that following an accounting process can cause a company to experience economic problems.
Step by Step Answer:
Introduction To AccountingAn Integrated Approach
ISBN: 9781119600107
8th Edition
Authors: Penne Ainsworth, Dan Deines