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mark to market questions-1

mark to market questions-1 - • Banks can disregard...

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Please read the two articles about mark-to-market accounting and be prepared to discuss the following questions in class. What impact does mark-to-market accounting have on a company’s financial statements during an economic downturn? Banks have to report billions of dollars on losses on assets. Banks are bundling good mortgages with bad mortgages. During the economic downturn, bad mortgages are outweighing the good ones, making banks look less profitable. How did the FASB modify mark-to-market accounting? Financial firms now had the option of reflecting the accounting changes in the first quarter or the second quarter. Required banks to disclose extensive information about assets they were unable to value based on market prices. Banks can now keep some declines in asset values off of their income statement.
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Unformatted text preview: • Banks can disregard “distress” sales that do not accurately reflect real market values. • Allowed more judgment by management and more ability to control the numbers they report. What was the rationale for modifying mark-to-market accounting? • Many banks were content with the rule when the market was up, but mark-to-market became a problem in late 2007 when the market began to plummet. • Stocks and bond markets were tanking. • The market values of some securities, mostly mortgage backed securities, are now far below the real value that will be realized over time. What particular problem do banks face when forced to write-down assets? • The bad mortgages outweigh the good ones....
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