Describe whether you believe an accounting process

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During the banking "crisis" in 2008, many financial institutions blamed their problems on an accounting rule called mark-to-market which essentially requires companies to report certain assets at their market (current) value rather than historical cost (what was paid for the item). Thus, the argument went, since the financial institutions were holding many mortgages that were worthless (the so-called sub-prime mortgages) and were required to write these assets down (thus reducing both the assets of the financial institutions as well as owners' equity), it was the accounting rule that caused the financial institutions' balance sheets to look bad. Discuss whether you believe that following an accounting process can cause a company to experience economic problems.

Reference no: EM13129792

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