Market-to-Market Accounting Methods - Assignment Example

The paper “Market-to-Market Accounting Methods" is a good example of an assignment on finance & accounting. To put it simply, the market-to-market accounting method means that a company is required to put the value of its assets on the basis of its market price on a particular day. This practice is certainly of advantage to future traders as they invest on the basis of the market price of a company on a particular day. However, market to market accounting gives rise to two possibilities. One is that the market value of a company may be more than its real value on a particular date. The second possibility is that the market value of a company may be lesser than its real value on a particular day. So the market-to-market value of a company is always not a real measure of the true value of its assets.

Market-to-market accounting methods greatly impacted the value of companies during the financial crisis. The problem with the markets is that they are to a great extent based on investor perceptions. So during the financial crisis, the value of assets held by the banks and investment institutions was considerable. However, the investors felt that the market value of these assets was negligible. So the banks were forced to price down the mortgage-backed securities held by them and reported massive losses.

Yes, it is good to allow the companies more flexibility with accounting procedures during the crisis so that they can place a realistic price on their assets. However, ironically speaking the companies can misuse this flexibility. Hence, such flexibility should be accompanied by some type of statutory monitoring procedure. Read More