Financial crises and Fair Value Accounting (Historical cost,deprival Essay

Financial crises and Fair rate Accounting (Historical cost,deprival value and commutation cost) - Essay Examplehand, the supporters of fair value covering method argued that the affair of this method of valuation was minimalistic in the pecuniary crisis and that the use of other methods of accounting could not have prevented the crisis. They identified that certain macro-economic factors like account surpluses, dispersing of loans without credibility checking, excess level of risk taking by the banks and the sharp fall in the prices of owe backed assets to be the main factors thrust the fiscal crisis. The monetary crisis of 2008 was a deep recession which impact almost all the nations of the world. Therefore, the reasons that have caused the crisis have been extensively canvass by the economists and scholars. One of the most studied topics in this respect is whether the use of the fair value accounting by the financial institutions has been a driving force for the trim down turn.The financial crisis of 2008 led to study debates among the researchers, academicians, banks as well as other participants of the financial markets regarding the role of Fair Value accounting in driving the failure of the financial markets in during the financial crisis. The financial crisis of 2008 was characterized by liquidity and volatility problems in the financial markets and the collapse or quasi breakdown of the major financial institutions of Wall Street like Lehman Brothers, Merry Lynch, Royal Bank of Scotland, Citicorp, AIG, Bear Sterns and Dexia (Ryan, 2008, p.14). The non-supporters of Fair Value Accounting argued that the use of fair value accounting methods in the financial reporting of the major financial institutions was the main accelerator and amplifier of the high intensity of the financial downturn. According to them, many financial institutions marked down the asset values in their financial reports due to the drip in the value of many financial instrumen ts. The marked down representation of the asset values in the balance sheets weakened the capitalization ratios of