Mark-to-Market Accounting Essay

1012 WordsOct 10, 20135 Pages
Barbara Taylor Tarleton State University – Waco Campus Mark-To- Market Accounting Introduction FASB Codification (2012) defines “marking to market” (p. 19) or the current “fair value” (p. 19) of securities as a price that the seller can expect to receive once they are sold in the current market. The purpose of this paper is to inform of what kinds of businesses use mark-to-market accounting, the businesses that wish they did not have to, and the reasons for both. The paper will also offer reasons both for and against mark-to-market accounting. Individuals usually do not qualify for mark-to market accounting. Individual investors may have major losses on their investments during a slow or weak economy. If they are trading securities as their main source of income, they may choose the mark-to-market accounting method. By doing so, any capital losses from investments would be treated as ordinary losses. This would save them money and reduce their taxes. The only downside to this is that choosing to use mark-to-market accounting is a permanent choice. The investor could petition the IRS for approval to return to their previous method of accounting but the IRS may or may not grant their request. The Enron scandal and subsequent bankruptcy really brought to light how easy it is to manipulate and cover up abuse of the accounting process. Mark-to-market accounting made it much easier for them. Because there were no current prices for gas and electric commodities to compare with, Enron was able to come up with their own model to use for future estimates and current values. The Enron financial statements were also not according to GAAP standards and did not disclose all the information they should have, thus making them useless. According to SFAC No. 1, information provided in financial reports should be useful for investors and creditors when they are making

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