Mark-to-Market Accounting and the Financial Crisis of 2007 and 2008

Abstract

This paper explores the concept of mark-to-market accounting, as defined by the Financial Accounting Statement 157 (hereafter "FAS 157). "This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements" (FAS 157-2, 2008, p. 3). Mark-to-market accounting has benefits and concerns which are explored, while considering their impact on the financial crisis of 2007 and 2008. A literary review of mark-to-market accounting and a questionnaire of accountants were conducted. The accountants were asked their opinions on mark-to-market accounting and possible alternatives to FAS 157. Second, an analysis was completed of stock and asset prices of selected firms in varying industries. This analysis demonstrated the effect of the implementation of FAS 157. Finally, an analysis of the same firms' financial notes concluded the research. to verify management's usage of FAS 157. It was determined that the Financial Accounting Standards Board's FAS 157 had minimal effect on the financial crisis. With the research completed it was determined the implementation of FAS 157 had little impact on any specific firm. The research pointed to other. factors beyond FAS 157 that may have contributed to the financial crisis. These factors were discussed in several articles, as well as, the financial notes of many firms. However, it was determined that FAS 157 had little contribution to the financial crisis.