Is Fair Value Accounting Should Be Responsible For The Global Financial Crisis ( Gfc )

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Introduction There is ongoing criticism on whether fair value accounting should be responsible for the global financial crisis (GFC). By incorporating the views from different interest groups and their unique insights towards the occurrence of global financial crisis this case study itself will give a broader overview of the causes of global financial crisis. 2.0 What is Fair Value Accounting? Fair value accounting, also known as market to market accounting is issued by FASB 2006 based on rule FAS 157 (Laux, C & Leuz C 2009). It’s widely adopted by international companies around the world ever since it’s set out as the US Generally Accepted Accounting Principles (US GAAP) and the International Financial Reporting Standards (IFRS) (Veron, N 2008). The fair value of an asset or liability can be derived by the following three level of characteristics listed under FAS 157. The first level financial instruments should be reflecting the quoted prices in active markets for identical assets. The second level is the quoted prices for similar assets or based on inputs observable from the marketplace. The last level is generally prices made based on model assumptions with no unobservable inputs (Laux, C & Leuz C 2009). 3.0 The impact of Fair Value Accounting Towards Global Financial Crisis 3.1 Greater Volatility in Earnings Fair value accounting utilising market value as a benchmark to value company’s assets has drawn a lot of controversy. This requires all

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