Langmead and Soroosh article on “Accounting for Financial Instruments: More Turmoil Ahead”, is based on the issue of global financial crisis that has given attention to financial instruments used globally including United States. Financial instrument transactions determine the standards of accounting features where some are regarded as counterproductive while others are regarded as counterintuitive based on asset derivations and securitizations. The article examines criticism on the quality of fair vale accounting as it relates to financial instruments. The author has done this successfully through a clear focus on financial instruments crisis, SEC report and financial crisis report, recent development in financial instruments and controversial standards.
One of the concepts that has been learnt from the article is “Mark-to-market accounting”, which refers to the act of accounting an item based on its market value while considering any changes in the value to the income statements as a loss or trading profit in short-term (Langmead and Soroosh 9). This occurs since such an item is regarded to be held for a short-term purpose. The other concept is that “fair value accounting for financial instruments did not cause the financial crisis” (Langmead and Soroosh 10). This leads to the development of the question, what was the role of fair value accounting on financial crisis?
The first concept on mark-to-market accounting is related to the textbook chapters. This is because the book has focused on basing the accounting practice of the items on their value. In this case, the value of an item is determined based on the prevailing market conditions. This means that changes in the value of the item are expected as the changes in the market conditions take place. As such, financial instruments have to be employed effectively in order to keep track of these changes in market value of items, as well as predict expected changes in item values, in near future. The second concept of fair value and financial crisis is related to the textbook in that the text book emphasizes on the essence of having fair value accounting. Thus, instances of lack of fair value accounting may result into over expenditures than the profit generation rate. This means that financial instruments fair value accounting has a big role to play in determining what needs to be done to ensure that financial crisis is not experienced.
Counter arguments from the article compared to the textbook are based on the role of the SEC. The article argues that the SEC has the mandate of studying mark-to-market accounting and the role it plays with regard to the financial crisis (Langmead and Soroosh 9). In contrast, Spiceland claims that the SEC has the role of prescribing accounting principles on the grounds of legal authority and reporting practices that are associated with all the corporations that are involved in public trading of securities. From both the article and textbook argument, SEC has the role of preventing the development of financial crisis. What differs is the steps or the tasks, which SEC has to undertake to prevent the development of financial crisis. For the article, SEC has to study mark-to-market accounting while from the text book SEC has to focus on legal authority for the operation of corporations with regard to handling of public securities and adherence to prescribed accounting principles.
Langmead, Joseph, and Soroosh, Jalal. Accounting for Financial Instruments More Turmoil
Ahead. The CPA Journal, 2011. Print.
Spiceland, David. Intermediate Accounting. ISBN: 0078110831, 2010. Print.