Q. What was the primary cause of the current financial crisis? Sub-prime mortgages, credit default swaps, or excessive debt? None of those , says Steve Forbes, chairman of Forbes Media and sometime political candidate. In his view, mark-to-market accounting was “the principal reason” that the U.S. financial system melted down in 2008.

Do accounting rules actually pack such a wallop? For readers not schooled in financial jargon, marking to market is the practice of revaluing an asset quarterly according to the price it would fetch if sold on the open market, regardless of what was actually paid for it. Because the practice allows for no outdated or wishful-thinking valuations, it is a key component of what is known as fair value accounting. And it is at the centre of the hottest accounting debate in decades.

Many bankers pilloried fair value accounting when the sudden seize-up of credit markets in the fall of 2008 drove the clearing prices for key assets held by their institutions to unprecedented lows. Economist Brian Wesbury represented the views of that group when he declared, “Mark-to-market accounting rules have turned a large problem into a humongous one. A vast majority of mortgages, corporate bonds, and structured debts are still performing. But because the market is frozen, the prices of these assets have fallen below their true value.” Pozen (2009, p 85)


POZEN, R. C. (2009) Is It Fair to Blame Fair Value Accounting for the Financial Crisis? Harvard Business Review, 87, 84-92.



Measurements by using fair value accounting have played an instrumental role in the creation of global financial crisis. Therefore, we should abandon the use of fair value accounting as a measurement tool.

Critically evaluate the above statement, by addressingstrengths and limitations of fair value accounting through the analysis of literature.


Identify two companies listed on Australian Securities Exchange (ASX).


Analyze the use of fair value measurement in their 2010-2011 financial year reports


Analyze the use of other alternative measurement methods in their reports


Based on your response to questions A and B, discuss the future development of fair value measurement in financial reporting.


Marking guide

Assessment Structure


Very Good





Very Poor

1. Synopsis/abstract (5)

2.Introduction (5)

3. Part A (20)

4. Part B (30)

5. Part C (25)

6. Conclusion / recommendation (5)

7. Referencing and citations (5)

8. English expression, coherence, grammar and spelling (5)

Submission Requirements:-


Harvard style referencing


2500 words


Plagiarism- 20%