The banks (especially in the U.S.) will be preparing their quarterly accounts at the end of September. One of the big issues they will be facing is how to treat their exposure to the sub-prime mortgages. Their assets should be 'marked to market', i.e., banks should determine the 'fair value' of the mortgages (and securitised tranches of mortgages etc). While there are rules as to what to do (i.e. fair value accounting), there is less guidance as to how to do it (i.e. value the mortgages). One of the issues with fair value accounting is the appropriate treatment when there is no active and liquid market (from an Oz article found here:
The banks are also facing losses on their holdings of complex securities where there is often no clear market price because of low trading volumes.This highlights one of the key issues facing accountants in the future; are they going to take up the role of valuation experts, or will they subcontract out of that role and focus more on the straight 'bookkeeping'. With the move towards fair value accounting standards globally, there will be a dramatic increase in work for valuation experts.
1 comment:
U are dead right when u write that valuation is nr impossible in a situation where the market for sub-prime securities is virtually non-existent. Another potential issue is whether to write down the value of the mortgage backed securities immediately to whatever can be best estimated to be their real value or should the valuation be done in tranches depending on the maturity cycle. This would no doubt throw up interesting nos
Post a Comment