Fair Value Reporting Essay

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Contents Introduction Fair Value Background Advantages of Fair Value Disadvantages of Fair Value The debate on Financial Stability Conclusion References Introduction Society’s major concern is the recent financial crisis which had an unprecedented impact and dire consequences on the global economy and the current economic regulations around the world. The beginning of the economic paradigm change was the major collapse of previously leading financial institutions such as Wachovia, Bear Stearns, Merrill Lynch and Lehman Brothers followed by the almost immediate collapse of the global economy and the paralysis of the financial market. This negative event has the direst and the most severe global economic consequences the world has seen after the end of the Second World War. The severity of this crisis has determined worldwide efforts for the financial authorities to identify solutions and future possible drawbacks and deal with them. Many researchers believe that the starting point of the financial crisis was the bursting of the US housing bubble, but this was never unquestionable proven since it is a multidimensional and complex event to begin with. Other significant factors proven that have a major impact for this crisis are the excessive risk-taking of managers due to high potential profit and their excessive leverage due to their compensation being directly depended on these profits, the loan availability which was easily accessible to people in already developed countries and the connection between the house-buying activity and the mortgage activity, especially in countries such as U.S. or the United Kingdom. Fair Value Background The events and the cause of this global economic crisis are the reasons why the use of the fair value accounting has been the center of financial research for the last

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