A new academic study finds that fair value accounting was unfairly blamed for precipitating the 2008-2009 financial crisis, but acknowledges that some investors reacted positively to news that the rules would be relaxed in response to the crisis.
In the wake of the crisis, Congress convened hearings to examine the impact of mark-to-market accounting and fair value measurement on the shares of investment banks such as Bear Stearns, Lehman Brothers and Merrill Lynch that had difficulty valuing mortgage-based securities in illiquid markets, pressuring the Financial Accounting Standards Board to relax the requirements for writing down the value of such securities. One of the provisions of the economic stimulus legislation, the Emergency Economic Stabilization Act of 2008, was to require the Securities and Exchange Commission to release a report in December 2008 to examine the role of mark-to-market accounting. The SEC study largely defended the role of mark-to-market and fair value accounting, but also provided some recommendations for revising the standards, which FASB and the International Accounting Standards Board quickly began to do.
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