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  • The third point raised in the article is that historical cost accounting approach and the fair value accounting approaches are closer and related to each other than most people think. However, the differences between the two approaches are brought by the differences in the reporting dates in different banks (Pozen, 2009, p.88). Hence, the article reveals that financial crisis was not caused by the fair value accounting approach as claimed by financial institutions but by a mixture of factors other than accounting approaches.

The third point raised in the article is that historical cost accounting approach and the fair value accounting approaches are closer and related to each other than most people think. However, the differences between the two approaches are brought by the differences in the reporting dates in different banks (Pozen, 2009, p.88). Hence, the article reveals that financial crisis was not caused by the fair value accounting approach as claimed by financial institutions but by a mixture of factors other than accounting approaches. Essay Example

The recent financial crisis resulted into major economic meltdown in many countries worldwide. Many people have associated the recent financial crisis to excessive debts held by companies, subprime mortgages and credit default swaps (Pozen, 2009, p.85). The main purpose of the article is investigating the real cause of the recent financial crisis. Specifically, the article investigates whether market-to-market accounting such as fair value contributed to the recent financial crisis.

The current issue that the article deals with is the battle that rages in the banking sector as well as other financial institutions on whether assets should be “marked to market” in quarterly financial statements released by the banks as opposed to reporting the assets at historical costs (Pozen, 2009, p.86).

One of the main points raised in the article is that fair value accounting is not a worthwhile approach because it puts the balance sheet of many banks at the whim of speculators and thus fair value accounting must be halted (Pozen, 2009, p.86). In this regard, the European banks have advocated for the historical cost accounting approach to replace the fair value accounting approach.

The second point raised in the article is that the fair value accounting approach did not cause the financial crisis but the crisis may have been aggravated by the misconceptions that prevailed regarding accounting standards both in the US and in the European countries (Pozen, 2009, p.87).

The third point raised in the article is that historical cost accounting approach and the fair value accounting approaches are closer and related to each other than most people think. However, the differences between the two approaches are brought by the differences in the reporting dates in different banks (Pozen, 2009, p.88). Hence, the article reveals that financial crisis was not caused by the fair value accounting approach as claimed by financial institutions but by a mixture of factors other than accounting approaches.

References

Pozen, R. (2009). Is it fair to blame fair value accounting for the financial crisis? Harvard Business Review, pp. 85-92