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Effects of the Subprime Crisis on the U.S. American Financial Reporting System

Focussed on Derecognition of Financial Assets, Special Purpose Entities, and Fair Value Accounting

Diplomarbeit 2009 106 Seiten

BWL - Investition und Finanzierung


Table of Contents

List of Abbreviations

List of Symbols

1 Introduction

2 History of the Subprime Crisis
2.1 The Term Subprime in Context of the Crisis
2.2 Key Causes and Development of the Subprime Mortgage Boom
2.2.1 Broader Economic Factors
2.2.2 Mortgage Securitization – Volume, Process and Participants
2.3 Development of the Subprime Crisis
2.3.1 Outbreak of the Subprime Crisis and Underlying Factors
2.3.2 Confidence and Liquidity Crisis
2.4 Intermediate Results: Key Causes of the Crisis

3 U.S. Financial Reporting System – Elements and Organizations
3.1 Reporting Standards and Authoritative Organizations.
3.2 Auditing Standards, Ethic Code and the PCAOB
3.3 Examinations, Enforcement and Assigned Organizations...
3.4 Education and Related Organizations

4 Critical Analysis of Reporting Standards Related to the Crisis
4.1 Fair Value Measurement in Context of the Crisis
4.1.1 Scope and Acceptance of Fair Value Accounting
4.1.2 Fair Value Measurement Pursuant to FAS 157 and Related Criticism Fair Value Hierarchy Pursuant to FAS Analysis of Public Criticism Related to the Fair Value Hierarchy Critical Review of Disclosure Requirements Pursuant to FAS
4.1.3 Discussion of Allegations Regarding Procyclicality
4.2 Reporting for Off-Balance Sheet Arrangements and the Crisis
4.2.1 Assessment of Accounting Concepts and Disclosure Requirements Derecognition of Financial Assets Characteristics of Qualifying Special Purpose Entities. Concept and Consolidation of Variable Interest Entities Related Key Disclosure Requirements
4.2.2 Evaluation of Public Criticism

5 Critical Evaluation of Actions Taken in Consequence of the Crisis
5.1 Clarifications and Planned Amendments to Accounting Standards
5.1.1 Clarification of Fair Value Measurement in Inactive Markets
5.1.2 Elimination of the Qualifying Special Purpose Entity Concept
5.1.3 Amendments to the Derecognition Model
5.1.4 Changes to Consolidation of Variable Interest Entities
5.1.5 Proposed Disclosure Amendments to FAS 140 and FIN 46(R) Introduction of Overall Objectives and Aggregation Principles Selective Disclosure Amendments Regarding Derecognition Disclosure Amendments with Respect to Variable Interest Entities Assessment of Disclosure Amendments to FAS 140 and FIN46(R)
5.1.6 Assessment of Effective Dates with Respect to Standard Setting
5.2 Findings Regarding Auditing and Ethic Standards
5.3 Actions with Respect to Examinations & Enforcement
5.4 Educational Proceedings and Considerations
5.4.1 Advising Letters of the SEC Regarding MD&A Disclosures Advises for Disclosures about Off-Balance Sheet Arrangements Advises for Disclosures Concerning Fair Value Measurements
5.4.2 Educational Publications Regarding Fair Value Measurement Individual Publications of the FASB, AICPA and PCAOB Joint SEC and FASB Clarifications on Fair Value Accounting

6 Conclusion

Appendix and List of Appendices

List of Laws, Ordinances and Administrative Directives

List of Literature

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Symbols

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

The Subprime Crisis[1] became noticeable first in the second half of 2006, when many subprime mortgage borrowers in the United States of America (U.S.) were no longer able to make their loan payments,[2] and securities linked to those mortgages, that had been sold all over the world, turned out to be often worth quite less and in general substantially more risky than market participants had expected. The crisis caused several major financial institutions and mortgage lenders to face substantial liquidity problems or even to file for bankruptcy, and Governments to provide funding in order to limit further damage to the economy.[3] As the market tried to figure out the problems underlying the crisis, financial reporting, especially regarding derecognition of financial assets, special purpose entities and fair value measurement, became a matter of public concern. Consequently, the purpose of this work is to discuss these concerns in order to estimate whether and to what extend financial reporting might have contributed to the crisis and to present and assess the usefulness of actions taken by the U.S. Financial Reporting System in response to the crisis.

In order to meet this objective, the second main chapter provides a brief description of how the housing boom and the subsequent crisis evolved. The information provided therein shall contribute to the reader’s understanding with respect to the following passages and especially judgements made by the author regarding the role of financial reporting in the crisis. The third main chapter will describe the U.S. Financial Reporting System, by providing basic information about U.S. institutions that authoritatively deal with the elements of the system, including their aims, basics about their work and how they interact. The fourth main section of the paper will examine the relevant reporting concepts and disclosure requirements, provide suggestions for improvements, and assess concerns voiced by market participants with respect to financial reporting. Subsequently, the thesis will analyze and judge actions taken by authoritative institutions of the U.S. Financial Reporting Sytems in response to the crisis. This thesis considered publications issued until December 10, 2008.

2 History of the Subprime Crisis

2.1 The Term Subprime in Context of the Crisis

The Crisis is based on mortgage loans given to subprime borrowers.[4] A mortgage loan is the amount of money a borrower owes on a mortgage. Thereby a mortgage is a lien on real estate given as collateral for the loan, i.e. if the borrower fails to repay the mortgage loan the lender has the right to take possession of the property.[5] Subprime mortgages are mortgages taken by subprime borrowers. Basically, a borrower who is designated subprime, is a person who does not qualify for prime (mortgage) loans.[6] There is no unique precise definition determining the subprime status of a borrower,[7] but in general such borrowers usually feature a weak credit history, or other characteristics associated with a higher risk of default compared to non-subprime borrowers.[8] Therefore, these loans carry higher interest rates[9] and higher fees,[10] than prime mortgages. Although lacking a unique definition of subprime, there is no doubt about the huge growth of the subprime mortgage market in recent years.[11] While in 1994 less than 5% of mortgage originations were subprime, the share was about 20% in 2006.[12]

Some kinds of mortgages that played a substantial role during the housing boom (and the subsequent crisis) were hybrids of so-called Adjustable Rate Mortgages (ARMs). These hybrids carry a fixed interest rate for an initial payment period. After this initial period has passed, the interest rate adjusts in a pre-arranged frequency[13] according to an index plus margin.[14] The standard subprime mortgages are 2/28 and 3/27 ARMs[15], which means that the interest rate is fixed for the first 2 or 3 years, and then adjusts to an index plus margin for the following 28, 27 years respectively.[16] In 2005, about 80% of all subprime mortgage loans originated were ARMs.[17]

2.2 Key Causes and Development of the Subprime Mortgage Boom

2.2.1 Broader Economic Factors

In order to stimulate the economy after the collapse of the so-called internet-bubble, the Federal Reserve (Fed) increased the money supply, i.e. liquidity in the U.S. economy,[18] by lowering the Federal Funds Rate (FFR) through open market operations[19] continuously from 6.5% which was valid until January 2001 to 1% in June 2003.[20] The intention of low FFR is to encourage borrowing, which should vivify spending and investing.[21] In coherency with the lowering of Federal Funds Rates (FFR), authors blame the FED for the decrease of mortgage rates to historically low levels[22] and consequently for increasing the demand for (subprime) mortgages significantly.[23] Because banks suffered losses from the bust of the internet bubble and the subsequent recession during the years 2000 to 2002, many of the large commercial banks changed their strategy and focussed on retail banking, including subprime mortgage banking.[24] Additionally, owning a house is part of the American dream, as people believe that homeownership entails all kinds of virtues[25] and “The idea that spending was 'patriotic' was widely propagated…”.[26] Although the average percentage interest rate on subprime mortgages was about 4 to 6 percentage points above the average percentage interest rate on prime mortgages with comparable maturity, the average interest rate on subprime mortgages was well below that on credit card borrowing. Therefore, the subprime mortgage market was the cheapest source of credit for millions of potential borrowers.[27]

Another factor that amplified the subprime mortgage boom was the increase of house prices. The price of an average house in the U.S. rose from $170,000 in 2000 to $240,000 in 2005. The reason for this increase is most probably, that more and more people were able to finance a home by taking out mortgages. This in turn led to a feedback on subprime mortgage lending,[28] because market participants thought that in case of payment delinquencies (e.g. because of higher interest rates after the intitial fixed period of ARMs expired), borrowers could refinance their mortgages by increasing their mortgage loans based on the increased worth of their houses, or sell the house at the increased price and repay the mortgage.[29]

2.2.2 Mortgage Securitization – Volume, Process and Participants

Mortgage lenders usually did not hold the individual mortgages they issued on their own books. Instead, these mortgages were usually securitized and sold to investors in the securities market.[30] Securitization played an important role in the subprime mortgage market, as about 75% of subprime mortgages originated in 2006 have been securitized. This means approximately $450 billion of originated subprime mortgages in 2006 were ultimately funded by investors in subprime-linked securities.[31] Furthermore, nearly 75% of all securitized subprime mortgages originated during 2004 and 2005 were 2/28 and 3/27 ARMs.[32]

The typical securitization process of (subprime) mortgages can be described as follows. Mortgage lenders collect (subprime) mortgages, which are then transferred to special-purpose-entities (SPEs), either by the lender itself or by another financial intermediary the lender previously sold the mortgages to.[33] The SPE then becomes the owner of the mortgages.[34] If the transfers meet the conditions for sale accounting, the mortgages will be derecognized from the transferor’s balance sheet. For accounting purposes, these SPEs might be constructed either as QSPEs or as VIEs. Depending on the type of SPE and other circumstances those SPEs are not consolidated by any party involved with it.[35] A servicing company collects the loan payments from the mortgage borrowers and passes them forward to the SPE in exchange for a fee, and handles delinquent loans and foreclosures.[36] The servicer may e.g. be the party, which transferred the assets to the SPE.[37] The SPE issues so-called mortgage backed securities (MBS), which are securities directly backed by pools of (subprime) mortgages previously transferred to the SPE.[38] MBS are debt instruments,[39] which entitle their buyers to receive the cash flow generated by the mortgages.[40] Before the MBS are sold to investors in the securities market, the MBSs are tranched and rated by a rating agency. The ratings typically range from AAA, - which is the best rating and reflects the highest investment grade - down to AA, A, BBB and so forth. Thereby, the ratings reflect the probability of default.[41] However, the ratings are de-linked from the credit risk of the individual mortgages,[42] as the MBS are not backed by specific loans.[43] Instead, the ratings declare how the securities rank regarding the right to receive cash flows and the obligation to absorb losses from the pool of mortgages underlying the securities.[44] Often, Subprime MBS rated AA or lower are re-securitized into so-called collateralized debt obligations (CDOs), which again are tranched and rated. As in the MBS securitizations, the most senior CDO tranche obtains an AAA rating.[45] CDOs may again be re-securitized several times resulting into so-called CDO2, CDO3, etc.,[46] resulting in even higher complexity of those products.[47] Because of the optimism about the performance of subprime mortgages, more than 90% of securities linked to this market got an AAA rating.[48] Investors in securities linked to the subprime mortgage market often failed to perform due diligence on their investments, and instead relied on these ratings provided by agencies.[49] Those Investors include commercial banks, investment banks and investment companies such as mutual and hedge funds, pension funds and insurance companies.[50] Thereby, Investors may be transferors as well.[51]

Further contributing to the complexity in the securitization market, transferors or third-parties were involved in the securitization process through several kinds of commitments and guarantees.[52] An example that acquired significant attention by the government[53] and the press[54] were so-called liquidity puts, which are derivative instruments. In case of Citigroup, which provided such puts, those guaranteed to pay back the investment at original value,[55] plus interest, with few exceptions.[56] Because of these puts, the CDOs obtained the same investment grade as the put provider.[57] Another example is loan repurchase obligations. Those were usually provided by market participants who transferred assets to a SPE, and guaranteed to buy back mortgages from the SPE in the event of early payment defaults of the mortgage borrowers.[58] Furthermore, the transferors or banks guaranteed to provide liquidity support to SPEs, in case the securities issued have a shorter life than the underlying assets –which is usually true for securities backed by mortgages - and thus must be rolled-over, i.e. reissued, after a certain time. The liquidity support agreements (e.g. letters of credit) guarantee to provide financing if the securities cannot be rolled-over.[59] At times house prices increased, interest rates were low and foreclosure activities appeared infrequently and uncorrelated among each other, subprime mortgage related securities performed well,[60] and their investors and guarantors apparently did not think they were exposed to high risks.[61] A figure that shows the above described positions in a typical (subprime) mortgage securitization is attached in Appendix I of this diploma thesis.[62]

2.3 Development of the Subprime Crisis

2.3.1 Outbreak of the Subprime Crisis

In response to the reviving of the US economy, the Fed began to increase FFR stepwise from 1% in June 2004 to 5.25% in June 2006, which remained valid until September 2007.[63] Especially the borrowers of 2/28 and 3/27 subprime ARMs faced problems in making their payments, since the initial fixed interest rate period ended and their mortgages reset to higher interest rates, which was often an increase of 30% or more.[64] Additionally, new home sales stagnated by the middle of 2006,[65] and house prices in the U.S. declined in average by 16.3% between July 2007 and July 2008,[66] presumably partly because of the growing foreclosure activities. Because many borrowers could only afford their mortgage if house prices continue to increase, i.e. allowing them to refinance, the house price depreciation forced even more borrowers into foreclosure.[67]

In the second half of 2006, so called early payment defaults - this means borrowers were not even able to make their first several payments[68] - increased significantly,[69] indicating a weakening of lending practices in 2006.[70] Thereby, the majority of foreclosure on subprime mortgages related to ARMs. The huge increase of early payment defaults contributed to several mortgage lenders taking unanticipated high expenses,[71] e.g. as a consequence of loan repurchase obligations.[72] By April 2007, more than 20 subprime lenders had filed for bankruptcy.[73] After all, the number of foreclosure fillings on subprime ARM loans increased by 90% in the second quarter of 2007 from the same quarter one year prior.[74]

2.3.2 Confidence and Liquidity Crisis

Market participants grew concerned about the decline of house prices and the rising level of credit losses, which they feared to increase for the foreseeable future.[75] Moreover, as foreclosure grew, subprime-linked securities were down-rated several degrees (e.g. about 45 per cent from single A to single B or less[76] ) from the mid of 2007,[77] which concussed investors’ faith in the reliability of ratings.[78] More or less over sudden, assets like CDOs appeared far less attractive to investors,[79] and market participants grew far more risk-avers regarding subprime-linked products.[80] Ultimately, most markets for subprime-linked securities dried up completely,[81] as market participants were no longer willing to transact. SPEs became unable to reissue their securities, causing the parties which agreed to provide liquidity support to fund.[82] The liquidity put providers had to fulfil their obligations too,[83] and additionally, some firms voluntarily brought formerly sold assets back onto their balance sheets, e.g. for reputational risk reasons or to avoid assets being dumped in the market.[84] The possibility of voluntary support led to further uncertainty among market participants.[85] Financial reporting with respect to SPEs and derecognition of financial assets became a matter of public concern.[86] For example, it has been stated that financial reporting did not reflect economic reality,[87] and that investors stayed away, because it was ostensibly unclear to them, which companies would ultimately own the potential losses.[88]

Financial institutions had to report massive write-downs,[89] because many products linked to the suprime mortgage market have to be reported at fair value (FV), which usually represents the transaction price of an asset. The accounting concept became a centre of controversial discussions, with opponents of the accounting concept asserting that FV accounting exacerbated the crisis by generating adverse feedback effects, while defendants of the accounting concept are convinced that it solely reflects market conditions.[90]

Liquidity strains of financial intermediaries arose at both ends of the loan production line. On the one end, they had to keep loans that were planned on selling, while on the other end, they had to honor their loan commitments. Moreover, as banks’ ability to fund themselves in the secondary market became stressed, they started hoarding liquidity. They grew more reluctant to lend each other money and significantly reduced the lending periods.[91] The result of these factors “… was unprecedented illiquidity in the interbank markets.”[92] Increased risk aversion, uncertainty about the macroeconomic outlook, the soundness of financial institutions, the quality of subprime linked products and market illiquidity seemingly fed one another.[93] Ultimately, several financial institutions faced drastic liquidity problems during the crisis.[94]

2.4 Intermediate Results: Key Causes of the Crisis

As the paper indicated, many aspects have contributed to the crisis and sometimes reinforced each other. After all, the author is of the opinion that the boom in the subprime mortgage market was ultimately caused by systematic misjudgement of risks - e.g. credit risk and its development in changing economic circumstances - by market participants,[95] and that the subsequent crisis was in substance an unavoidable consequence of this boom. Thereby uncertainty among market participants, e.g. about future macroeconomic developments and as a result of the extraordinary complexity and intransparency in several areas of the market - such as the complexity inherent to CDOs or arising from the complex network of interconnections within the financial system - obviously amplified the crisis.[96]

3 U.S. Financial Reporting System – Elements and Organizations

3.1 Reporting Standards and Authoritative Organizations

Financial accounting and reporting standards govern the preparation of financial reports and are essential to the functioning of the economy.[97] At present, authoritative accounting and reporting standards for publicly held companies are set by two organizations - the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB)[98]. Primarily, pursuant to the Securities Exchange Act of 1934, it is the SEC that has statuary authority to establish the above mentioned kinds of standards, but in 1973 the SEC passed this authority to the FASB.[99]

The FASB’s mission is to develop and improve financial accounting and reporting standards in order to provide guidance and education to preparers, auditors and users of financial statements.[100] Binding promulgations of the FASB include: Statements of Financial Accounting Standards (FAS), FASB Interpretations (FIN) and FASB Staff Positions (FSP).[101] FAS cover regulations for single accounting issues, FIN explicate and supplement certain FAS, and FSP represent appliance guidelines for preparers.[102] In coordination with the FASB, the Accounting Standards Exchange Commission (AcSEC), which is a working group of the American Institute of Certified Public Accountants (AICPA), publishes appliance guidelines, called Statements of Position (SOP),[103] which are deemed to fall just behind FAS and FIN in authority.[104]

In its standard-setting-process, the FASB considers the opinion of many other experts and interested persons, especially in major projects[105] “… to ensure that various points of view on the issues involved are represented.”[106] The FASB’s standard-setting process is carried out in several steps and can be described as follows:[107]

1. Project requests and recommendations received from various sources are discussed at a public meeting and added to the agenda, if considered being significant,
2. FASB Staff members identify and analyze significant issues, which the FASB Board members deliberate in its public board meetings;
3. Issuance of an Exposure Draft (ED),
4. Public hearing on ED,
5. Evaluation of public responses and re-deliberation of proposed provisions at public meetings,
6. Issuance of the final FAS or FIN through simple majority vote.

Perhaps the FASB’s most important overall project is to achieve convergence with the International Accounting Standards Board (IASB) through a single set of high-quality accounting standards.[108] The IASB’s standard setting approach is rather principles-based, while the FASB’s approach of setting standards is mainly rules-based. Instead of detailed rules, principles-based accounting provides a conceptual basis for preparers of financial statements to follow.[109] It is deemed that the FASB will try to become US accounting more principles-based.[110]

The SEC has been established by the Securities Exchange Act of 1934 and is only subject to supervision of the Congress.[111] The SEC`s mission “… is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”[112] The SEC usually relies on the FASB concerning the development of accounting and reporting standards.[113] Nevertheless, the FASB is subject to the SEC’s oversight.[114] The SEC monitors[115] and sometimes influences the FASB’s work. For example, the SEC sometimes prods the FASB to develop standards regarding specific issues,[116] or to take quicker action on certain reporting problems.[117] Furthermore, the standards developed by the FASB have to be indorsed by the SEC, in order to become effective.[118] Even though the SEC passed some of its authority to the FASB, one of the major tasks of the SEC concerning reporting standards is the establishment of formal requirements regarding the content of financial statements. One of the most important standards of the SEC is regulation S-K.[119] Furthermore, the SEC established so-called Forms which direct the formal structure and content of the different kinds of reports,[120] such as Form 10-K, that guides the preparation of the annual report and requires disclosures about additional material information.[121] The annual report on Form 10-K includes the audited financial statement and supplemental information that provide a comprehensive overview of the company's business and financial condition.[122] Probably one of the most important elements of Form 10-K is the Managements Discussion and Analysis (MD&A), which includes the narrative explanation of financial condition and results of operation pursuant to the requirements of Item 303 of regulation S-K.[123] In general, Item 303 of Regulation S-K requires companies to discuss any trends, commitments, events, uncertainties and off-balance sheet arrangements that are reasonably likely to have a material impact on the company`s liquidity, capital resources and results of operations.[124]

3.2. Auditing Standards, Ethic Code and the PCAOB

Auditors examine financial statements to reassure investors that financial statements are reliable, i.e. accurate, truthful, complete and prepared in compliance with authoritative accounting and reporting standards.[125] In general, audit standards are rules, auditors have to comply with, when performing audits. Ethic standards govern the conduct of auditors.

Establishing authoritative audit and ethic standards is one of the responsibilities of the PCAOB. This organization was built by the Sarbanes-Oxley Act (SOX),[126] which assigned the PCAOB to develop those standards.[127] In order to legally prepare or issue audit reports on publicly held companies, or to participate in such audits, audit firms have to register with the PCAOB[128] and are therewith subject to the PCAOB’s authority.[129] The Mission of the PCAOB’s oversight is to protect the public interest in the preparation of fair, informative and independent audit reports.[130] Similar to the FASB, the PCAOB states that “… it recognizes that the development of such standards should be an open, public process in which investors, the accounting profession, the preparers of financial statements, and others have the opportunity to participate.”[131] The PCAOB is subject to the SEC`s supervision[132] As with FASB, final standards proposed by the PCAOB have to be approved by the SEC. Otherwise, they do not become effective.[133]

3.3 Examinations, Enforcement and Assigned Organizations

Enforcement is needed to foster compliance and consequently to enhance the quality and reliability of financial statements. The PCAOB is authorized to investigate audits performed by registered public accounting firms and to take disciplinary actions against those firms and associated persons, in case they violated authoritative rules related to their profession.[134] In its investigation program, the PCAOB follows a risk-based approach.[135] Possible sanctions of the PCAOB range from monetary penalties up to revocation of an audit firm’s registration.[136]

Financial reporting builds one part of the SEC’s enforcement areas.[137] As the PCAOB, the SEC also deals with audit enforcement as it may e.g. suspend auditors from practicing before it in case of improper professional conduct.[138] Hence, once again it is the SEC that possesses the ultimate authority. The SEC initiates investigations into possible violations of securities law and conducts civil actions and administrative proceedings. In order to take civil actions, the SEC files a complaint with a federal court. Administrative actions proceed within the SEC before an administrative law judge. Sanctions range from injunctions and monetary penalties up to imprisonment in case a person violates the order of the court. The Division of Enforcement (DoE) assists the SEC in executing its law enforcement. Information about possible violations of securities law are brought to the DoE e.g. through investor complaints, self-regulatory organizations or media reports. Furthermore, the DoE is supported by most of the other Divisions and Offices of the SEC, as e.g. the Division of Corporation Finance (DoCF) and the Office of the Chief Accountant (OCA). The DoCF regularly reviews the disclosures of publicly-held companies, including those provided in annual and quarterly filings (i.e. forms 10-K and 10-Q) and annual reports to shareholders, in order to monitor whether companies complied with disclosure requirements and to improve the quality of disclosures.[139] In conducting its reviews, the DoCF focuses on areas of potential risk.[140] Financial Statements of public companies are reviewed at least once every three years. Disclosures of the largest public companies are reviewed more frequently by this Division.[141] Furthermore, the OCA “…is often called upon to assist in addressing issues that arise in the context of Commission enforcement actions.”[142]

3.4 Education and Related Organizations

The rules discussed before have to be understood by preparers of financial statements and auditors, to avoid non-fraudulent compliance problems and to provide financial statement readers with reliable information. All of the organizations presented before do somehow contribute to Financial Reporting related Education. For example, if the SEC comments on financial reporting standards without amending them, or asks registrants to improve their financial reporting without taking enforcement actions, this may be regarded as educational actions. According to the FASB’s mission, it contributes to the education of preparers, auditors and users of financial statements through its approach of setting standards.[143] Furthermore, the FASB e.g. sometimes issues papers, called Understanding the Issues.[144] The PCAOB e.g. sometimes issues so-called Staff Audit Practice Alerts, which “…highlight new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of PCAOB standards and relevant laws.”[145] Additionally, the AICPA is engaged in the education of Accountants.[146] Among others, it responsible for the Certified Public Accountant (CPA) exam,[147] and its Centre for Audit Quality (CAQ) regularly publishes so-called CAQ Audit Practice Alerts,[148] to keep its readers informed on current financial reporting related matters.

4 Critical Analysis of Reporting Standards Related to the Crisis

4.1 Fair Value Measurement in Context of the Crisis

4.1.1 Scope and Acceptance of Fair Value Accounting

Many assets that played a role during the subprime crisis have to be measured at fair value (FV). Those which are reported at FV on the balance sheet include e.g. securities classified as trading or available-for-sale (AFS), derivative instruments, financial instruments (FI) within the scope of FAS 159 for which the fair value option is chosen and usually the initial recognition of a guarantee.[149] Unrealized gains and losses as a result of FV measurement have to be reported either on the income statement (e.g. trading securities and FI where the FV option is elected) or in other comprehensive income (e.g. AFS securities, except in case of impairment).[150] Additionally, some assets have to be written-down to FV as a consequence of non-temporary impairment, like e.g. AFS and held-to-maturity securities.[151]

Apparently, the majority of market participants in the US[152] – and as well in Europe[153] – favour the use of fair value, if markets are liquid. Some market participants plenary support the current approach for measuring FV, arguing that it provides more useful information to investors than alternative accounting models.[154] Sometimes, FV accounting is even regarded as a part of a business control system,[155] or early warning system,[156] as changes in FV reflect changes in the market. In a survey of the Chartered Financial Analyst (CFA) Institute in March 2008, 79% of the 2,006 respondents indicate that the use of FV improves transparency and contributes to investor understanding of financial institutions risk profiles. Another 74% are of the opinion that FV improves market integrity. Nevertheless, 55% believe that FV exacerbated the crisis.[157] The CFA indicates that this might eventually be a consequence of the views widely reported media.[158]

4.1.2 Fair Value Measurement Pursuant to FAS 157 and Related Criticism Fair Value Hierarchy pursuant to FAS 157

Although FV existed for about 50 years in the US,[159] interestingly, the increased use of market prices to measure securities since 1993 is mainly a result of the U.S. savings and loan crisis, in which losses on loans had been hidden artificially by the use of historic cost accounting.[160] The following text will explain FV measurement pursuant to FAS 157. This standard, entitled Fair Value Measurements, was issued in September 2006, and became effective for fiscal years beginning after November 15, 2007,[161] i.e. during the crisis. Mentionable, FAS 157 does not create new uses for FV, i.e. it applies to those products already required to be measured at FV.[162] Instead, it is designed to clarify existing standards[163] and demands more rigor from companies in estimating FV.[164] Beneath providing a unique definition of FV, FAS 157 furthermore establishes a framework for measuring FV and requires companies to expand their disclosures about those measurements.[165]

Par. 5 of FAS 157 defines fair value as “…the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”[166] Pursuant to par. 7, the term price refers to an exit price from the perspective of a market participant that holds the asset or owes the liability. An orderly transaction is a transaction that is unforced, i.e. it is not a forced liquidation or distress sale.[167] However, significantly decreased transaction volumes do not necessarily indicate that these represent distressed or forced sales.[168] The SEC requires companies to provide convincing evidence that market prices (i.e. observable transactions) are driven by forced sales.[169]

FAS 157 distinguishes between observable and unobservable inputs to measure FV. Pursuant to par. 21, the term input in general refers to assumptions market participants would perform in pricing the relevant assets or liabilites, including assumptions about risk, as e.g. the risk inherent in valuation techniques and /or risks inherent in the inputs to the valuation techniques used to measure FV. Thereby, observable inputs reflect those assumptions based on market data, while unobservable inputs represent the reporting company’s own assumptions about assumptions market participants would consider for pricing the asset or liability. In performing FV measurements, companies shall maximize their use of observable inputs and consequently minimize the use of unobservable inputs.[170]

The following FV hierarchy groups the inputs to measure FV from highest to lowest priority.[171] Pursuant to par. 24, Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. A market is deemed active, if transactions occur with frequency and volume that is sufficient to provide ongoing pricing information.[172] Level 2 inputs are inputs which are directly or indirectly observable. Those include quoted market prices for similar assets or liabilities in markets being active, quoted prices for similar or identical assets and liabilities in markets with few transactions and observable inputs other than quoted prices, like e.g. prepayment speeds or yield curves quoted at commonly intervals.[173] Thus, Level 2 inputs are hybrids of mark-to-market and mark-to-model FV. While quoted market prices for similar products in active markets and identical products in markets with few transactions yield adjusted mark-to-market accounting,[174] other observable inputs, like e.g. interest and default rates, prepayment speeds, credit risks or empirical correlations,[175] yield mark-to-model measurements, as these inputs (although based on market information) must be employed in a model to estimate the FV.[176] As quoted market prices provide the most reliable evidence of FV and must be used to measure FV whenever available[177] with narrow exceptions,[178] there seems to be a FV measurement hierarchy within Level 2. Pursuant to par. 29 of FAS 157, adjustments to Level 2 inputs that are significant to the FV measurement in its entirety might render a Level 3 measurement.[179] Pursuant to par. 30, Level 3 inputs are unobservable inputs to measure the FV of an asset or liability and shall only be used to measure FV “… to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.”[180] Consequently, Level 3 inputs yield mark-to-model valuations.[181] A figure that displays the FV hierarchy pursuant to FAS 157 is included in Appendix II of this diploma thesis.[182] Analysis of Public Criticism Related to the Fair Value Hierarchy

During the crisis, some market participants claimed that companies were forced to use market prices although the market became illiquid,[183] or market prices represent distressed sales,[184] or fire-sale prices.[185] As presented in the previous chapter, none of this is the case. Consequently, those statements might indicate that there is a need for education or to clarify the accounting standard. However, the guidance in FAS 157 is principles based and requires companies to make their own judgement about whether e.g. market prices represent distressed sales - and consequently should not be used to measure FV as this would object its definition. Market participants obviously struggled with this guidance and felt unsure whether market prices during the crisis were indicative for distressed sales or still consistent with the FV definition.[186] Moreover, William Isaac, a former chief of the Federal Deposit Insurance Corporation (FDIC), indicated that assets during the crisis have been marked down to ostensibly unrealistic low market prices, because of auditors’ fears of litigation,[187] which he asserted to have significantly worsened the crisis.[188]

Because of the uncertainty regarding whether or not companies are permitted to use models to estimate FVs in the market conditions during the crisis, Ryan - Accounting Professor at New York University[189] - and The Institute of International Finance, Inc. (IIF)[190] are of the opinion that the FASB should provide additional guidance on the boundaries between Level 2 and Level 3 of the FV hierarchy.[191]

As the crisis evolved, many subprime-linked positions had to be measured by the use of Level 3 inputs.[192] Although that time Level 3 valuations seemed to be companies’ preferred valuation technique in comparison to Level 1 and 2 measurements,[193] they caused problems among preparers of financial statements, especially as some of them obviously did not have established adequate models until then and lacked access to underlying data to properly estimate FVs of e.g. complex securities.[194] Additionally, model-based valuations are much more difficult and challenging to make,[195] presumably especially for complex assets such as CDOs. Furthermore, some market participants recognize that the fact that inputs to valuation models vary among entities makes fair value estimates based on models subjective[196] and incomparable among entities. Some organizations, including the IIF and the Financial Stability Forum (FSF) as well as Professor Ryan and some preparers of financial statements are of the opinion that the FASB should provide additional guidance regarding how to measure FVs when markets are no longer active.[197] However, FAS 157 is considered to be a principles-based standard. Hence, if principles-based accounting is desired, the author agrees with Russell Mallett of the audit firm PricawaterhouseCoopers that the market must accept a lack of detailed guidance and maybe even some incomparability.[198] Further criticism regarding model-based valuations include the huge effort and therewith considerable costs associated with those potentially uncertain measurements, the more so as preparers and auditors need the help of so-called valuation specialists.[199] Additionally, the SEC’s Advisory Committee on Improvements to Financial Reporting (CIFiR) raised concerns that users of financial statements might not understand the uncertainty arising from model-based valuations, i.e. that those are merely estimates and hence, often lack precision.[200]


[1] In the following referred to simply as the crisis.

[2] See BRAUNSTEIN, S. (2007); NAZARETH, A. L. (2007); RYAN S. G. (2008a), p. 20, footnote 14.

[3] See e.g. BERNANKE, B. S. (2008a); BERNANKE, B. S. (2008b).

[4] See HERZ, R. H. (2008b), p. 2f.

[5] See GOEDE, G. W. (2002), p. 868.

[6] See GRAMLICH, E. M. (2007), p. 17.

[7] Definitions of subprime can vary among lenders. One popular indicator to measure a borrower’s creditworthiness is the so called FICO Score, which issues credit ratings based on repayment histories. Additionally, lenders consider e.g. debt-service-to-income-ratios and/or loan-to-value-ratios. Derived from: CROWE CHIZEK AND COMPANY LLC. (Ed.) (2008), p. 2; MURPHY, E. V. (2007), p. 2f.; RYAN, S. G. (2008a), p. 10; THE CENTER FOR STATISTICAL RESEARCH INC. (Ed.) (2005), p. 27.

[8] See BERNANKE, B. S. (2007); SABRY, F. / SCHOPFLOCHER, T. (2007), p. 2.

[9] See AVERY, B. / BREVOORT, K. P. / CANNER, G. B. (2007), p. 8; CROWE CHIZEK AND COMPANY LLC. (Ed.) (2008), p. 2; SABRY, F. / SCHOPFLOCHER, T. (2007), p. 2.

[10] See GRAMLICH, E. M. (2007), p. 17.

[11] Ibid.

[12] See BRAUNSTEIN, S (2007).

[13] See MCWHINNEY, J. (2005), p. 2.

[14] See NIELSEN, B. (2007).

[15] See GRAMLICH, E. M. (2007), p. 17.

[16] See NIELSEN, B. (2007).

[17] See CROWE CHIZEK AND COMPANY LLC. (Ed.) (2008), p. 3.

[18] See MURPHY, R. P. (2008); PETROFF, E. (2007).

[19] Open market operations is basically the selling or purchasing of previously issued U.S. treasury and federal agency securities, see FRB (2008).

[20] See FRB (2008).

[21] See BARNES, R. (2007).

[22] See WATKINS, M. (2007).

[23] See NAZARETH, A.L. (2007).

[24] See RYAN, S. G. (2008a) p. 8.

[25] See GRAMLICH, E. M. (2007), p. 57.

[26] BARNES, R. (2007).

[27] See GRAMLICH, E. M. (2007), p. 17.

[28] See WATKINS, M. (2007).

[29] See BRAUNSTEIN, S. (2007); GRAMLICH, E. M. (2007), p. 18.

[30] See NAZARETH, A. L. (2007).

[31] See BAIR, S. C. (2007).

[32] Ibid.

[33] See RYAN, S. G. (2008a), p.16f.

[34] See SABRY, F. / SCHOPFLOCHER, T. (2007), p. 6.

[35] For an in-depth discussion on consolidation of SPEs and derecognition, see chapter 4.2.1.

[36] See BAIR, S. C. (2007); SABRY, F. / SCHOPFLOCHER, T. (2007), p. 6.

[37] See SABRY, F. / SCHOPFLOCHER, T. (2007), p. 6.

[38] See RYAN, S. G. (2008a), p.18.

[39] See CROWE CHIZEK AND COMPANY LLC. (Ed.) (2008), p. 4.

[40] See CHEN, W. / LIU, C.-C. / RYAN, S. G. (2007), p. 6; SABRY, F. / SCHOPFLOCHER, T. (2007), p. 6.

[41] See SABRY, F. / SCHOPFLOCHER, T. (2007), p. 6f.

[42] See RÜGEMER, R. / MARR, B. (2008), p. 217.

[43] See SABRY, F. / SCHOPFLOCHER, T. (2007), p. 6.

[44] This means the AAA papers get paid preferentially, while the subordinated pieces get paid only to the extent the collateral permits and the higher rated securities are served with cash flows, see SABRY, F. / SCHOPFLOCHER, T. (2007), p. 6. The other way round, this means the so called equity tranche (which remains unrated) is the first to absorb credit losses from the mortgages. If that tranche completely fails, the tranche with the worst rating will take the incremental credit losses until it fails too. Then the tranche with the second worst rating bears the losses and so forth, until all credit losses are absorbed, see RYAN, S. G. (2008a), p. 17.

[45] The creation of higher-rated CDOs out of lower-rated MBS is possible as CDOs are constructed to include diverse sets of MBS from many former securitizations. Under normal circumstances, the losses on the individual MBS in the pool are expected to diversify considerably. Additionally, individual MBS experiencing losses in a CDO re-securitization pool do not need to fail completely, and the portion that is not lost is allocated to the most senior CDO tranche. See RYAN S. G. (2008a), p. 17f.

[46] See RYAN, S. G. (2008a), p. 18.

[47] See HERZ, R. H. (2008b), p. 4.

[48] See DODD, R. / MILLS, P. (2008).

[49] See DODD, R. / MILLS, P. (2008); IIF (Ed.) (2008b), p. 16; PETROFF, E. (2007).

[50] See CROWE CHIZEK AND COMPANY LLC. (Ed.) (2008), p. 4; similar: SABRY, F. / SCHOPFLOCHER, T. (2007), p. 7; AICPA (Ed.) (2007), p. 2.

[51] See RYAN, S. G. (2008a), p. 52, figure 3.

[52] See CROWE CHIZEK AND COMPANY LLC. (Ed.) (2008), p. 5 in conjunction with RYAN, S. G. (2008a), p. 18.

[53] See REED, J. (2008), p. 1f.

[54] See HENRY, D. (2007); LOOMIS, C. (2007).

[55] See LOOMIS, C. (2007).

[56] See HENRY, D. (2007).

[57] Ibid.

[58] See CROWE CHIZEK AND COMPANY LLC. (Ed.) (2008), p. 7.

[59] See RYAN, S. G. (2008a), p. 18.

[60] See NAZARETH, A. L. (2007); RYAN, S. G. (2008a), p. 14f.

[61] Similar: HENRY, D. (2007), who refers to providers of liquidity puts.

[62] See Appendix I, p. 72 of this diploma thesis.

[63] See FRB (2008).

[64] See BAIR, S. C. (2007).

[65] See BARNES, R. (2007).

[66] See CLIFFORD, C. (2008).

[67] See DODD, R. / MILLS, P. (2008).

[68] See NAZARETH, A. L. (2007).

[69] See NAZARETH, A. L. (2007); RYAN S. G. (2008a), p. 20, footnote 14.

[70] See BRAUNSTEIN, S. (2007).

[71] Ibid.

[72] See NAZARETH, A. L. (2007).

[73] See GRAMLICH, E. M. (2007), p. 8.

[74] See CENTER FOR RESPONSIBLE LENDING (Ed.) (2007), p. 3.

[75] See AICPA (Ed.) (2007), p. 1.

[76] See figure of Standard & Poor’s in: DODD, R. / MILLS, P. (2008).

[77] See DODD, R. / MILLS, P. (2008).

[78] See DODD, R. / MILLS, P. (2008); FSF (Ed.) (2008b), p. 6.

[79] See BARNES, R. (2007).

[80] See BARNES, R. (2007); FSF (Ed.) (2008a), p. 2 / p. 4.

[81] See POZEN, R. C. (2008).

[82] See NAZARETH, A. L. (2007); RYAN, S. G. (2008a), p. 21.

[83] Exemplarily, see LOOMIS, C. (2007), who exclusively refers to Citigroup.

[84] See IIF (Ed.) (2008a), p. 4, cipher 14; IIF (Ed.) (2008b), p.63.

[85] See TETT, G. / DAVIES, P. J. (2007).

[86] For an in-depth analysis see chapter, p. 30f. / chapter, p. 34f. / chapter 4.2.2, p. 38. See also REED, J. (2008), p. 1f.

[87] See PITTMAN, M. (2008).

[88] See POZEN, R. C. (2008).

[89] See IIF (Ed.) (2008a), p. 4, cipher 14.

[90] For an in depth discussion on FV measurement in context of the crisis, see chapter 4.1, p. 17- 28 of this diploma thesis.

[91] See DODD, R. / MILLS, P. (2008).

[92] DODD, R. / MILLS, P. (2008).

[93] See FSF (Ed.) (2008b), p. 6.

[94] See BERNANKE, B. S. (2008b); DODD, R. / MILLS, P. (2008).

[95] For authors, who support a similar opinion, see: BRAUNSTEIN, S. (2007); FSF (Ed.) (2008a), p. 5; FSF (Ed.) (2008b), p. 5; HENRY, D. (2007); HERZ, R. H. (2008b), p. 2f.

[96] For authors, who support a similar opinion, see: BARNES, R. (2007); FSF (Ed.) (2008a), p. 2.

[97] See FASB (Ed.) (2007), p. 1.

[98] See ALVES, W. (2007), p. 14f. in conjunction with PELLENS, B. /FÜLBIER, R. U. / GASSEN, J. (2006), p. 56. One additional organization that has the formal right to develop and decree accounting policies, but did not make use of this right up to now, is the PCAOB. See ALVES, W. (2007), p. 16.

[99] See FASB (Ed.) (2007), p. 1.

[100] Ibid., p. 1.

[101] See KIESO, D. E. / WEYGANDT, J. J. / WARFIELD, T. D. (2007), p. 9.

[102] See ALVES W. (2007), p. 15f.

[103] See ALVES W. (2007), p.16.

[104] See HAYES, R. B. (1996).

[105] See FASB (Ed.) (2007), p. 3 in coherency with p. 6f.

[106] FASB (Ed.) (2007), p. 7.

[107] See FASB (Ed.) (w.y).

[108] See FASB (Ed.) (2008a).

[109] See SHORTRIDGE, R. T. / MYRING, M. (2004).

[110] See SEC (Ed.) (2008f), time 1:04:10 – 1:04:15, respondent: Mallett III, R. B.

[111] See PELLENS, B. / FÜLBIER, R. U. / GASSEN, J. (2006), p. 58.

[112] SEC (Ed.) (2008d).

[113] See KIESO, D. E. / WEYGANDT, J. J. / WARFIELD, T. D. (2007), p. 7; KPMG (Ed.) (2003), p. 7.

[114] See SEC (Ed.) (2008d).

[115] Ibid.

[116] See KIESO, D. E. / WEYGANDT, J. J. / WARFIELD, T. D. (2007), p. 7; PELLENS, B. / FÜLBIER, R. U. / GASSEN, J. (2006), p. 65.

[117] See KIESO, D. E. / WEYGANDT, J. J. / WARFIELD, T. D. (2007), p. 7.

[118] See PELLENS, B. / FÜLBIER, R. U. / GASSEN, J. (2006), p. 65.

[119] See ALVES W. (2007), p. 15.; KPMG (Ed.) (2003), S. 7.

[120] See ALVES W. (2007), p. 14f.; KPMG (Ed.) (2003), S. 7.

[121] See FORM 10-K, rule C1 and C3.

[122] See SEC (Ed.) (2006).

[123] See ALVES, W. (2007), p. 210.

[124] See REGULATION S-K, ITEM 303(a)(1)-(a)(3)(ii) and Item 303(a)(4)(i).

[125] See SEC (Ed.) (2008e).

[126] See SOX, section 101(a).

[127] See SOX section 103(a).

[128] See SOX, section 102.

[129] See PCAOB (Ed.) (w.y. (c)).

[130] See PCAOB (Ed.) (w.y. (c)).

[131] PCAOB (Ed.) (w.y. (a)).

[132] See PELLENS, B. / FÜLBIER, R. U. / GASSEN, J. (2006), p. 60; SEC (Ed.) (2008d).

[133] See PCAOB (Ed.) (w.y. (a)).

[134] See PCAOB (Ed.) (w.y. (b)); PCAOB RULES ON INVESTIGATIONS AND ADJUSTICATIONS (2003), prefix, p. 2, cipher A.

[135] See COX, C. (2008), Memorandum, p. 4.

[136] See PCAOB (Ed.) (w.y. (b)).

[137] See SEC (Ed.) (w.y.); PELLENS, B. / FÜLBIER, R. U. / GASSEN, J. (2006) p. 71.


[139] See SEC (Ed.) (2008d).

[140] See COX, C. (2008), Memorandum, p. 6.

[141] See COX, C. (2008), Memorandum, p. 2.

[142] SEC (Ed.) (2008d).

[143] See FASB (Ed.) (2007), p. 1.; see also chapter 3.1, p. 11 of this diploma thesis.

[144] See e.g. CROOCH, G. M. / UPTON W. S. (2001), p. 1; FOSTER J. L. / JOHNSON, M. T. (2001), p. 1; HERZ, R. H. / MACDONALD, L. A. (2008), p. 1.

[145] PCAOB (Ed.) (w.y. (d)).

[146] For further information see AICPA (Ed.) (w.y.).

[147] See GCPAS (Ed.) (w.y.); WHITTINGTON, O. R. / DELANEY, P. R. (2007), p. 15.

[148] See CAQ (Ed.) (w.y.).

[149] For trading and AFS securities see FAS 115, par. 12; for derivatives see FAS 133, par. 17; for the scope of FAS 159 see FAS 159, par. 7f.; for FI within the scope of FAS 159 see FAS 159, par. 15; for the initial recognition of a guarantee and exceptions see FIN 45, par. 9f. à ok

[150] For AFS and trading securities see FAS 115, par. 13; for FI under the FV option see FAS 159, par. 3.

[151] See FAS 115, par. 16.

[152] See BASTIAN, N. et al (2008); SEC (Ed.) (2008f), time: 0:0:06 – 0:29:30; SEC (Ed.) (2008g), time: 0:05:30 – 0:06:00.

[153] See GASSEN, J. / SCHWEDLER, K. (2008), p. 2.

[154] See RYAN, S. G. (2008b), p. 16.

[155] See SEC (Ed.) (2008f), time: 0:20:07 – 0:21:15, respondent: Price, J. L.

[156] See FASB (Ed.) (2008e), time: 0:36:30 – 0:36:42, respondent: Schroeder, M.

[157] See CFA INSTITUTE (Ed.) (2008).

[158] See SCHACHT, K. N. / WHITE G. I. (2008), p. 3.

[159] See RYAN, S.G. (2008b), p. 1f.

[160] See DAVIES, P. J. (2008).

[161] See FAS 157, prefix: Status.

[162] See FAS 157, prefix: Summary.

[163] Before the issuance of FAS 157, the rules for FV measurement were scattered among those standards, which required the use of FV. Moreover, definitions of FV differed among standards, see FAS 157, prefix: Summary

[164] See MILLER, P. B. W. / BAHNSON, P. R. (2007).

[165] See FAS 157, prefix: Summary / par. 1.

[166] FAS 157, par. 5.

[167] See FAS 157, par. 7.

[168] See AICPA (Ed.) (2007), p. 4.

[169] See RYAN, S. G. (2008b), p. 14.

[170] See FAS 157, par. 21.

[171] See FAS 157, par. 22.

[172] See FAS 157, par. 24.

[173] See FAS 157, par. 28.

[174] See RYAN, S. G. (2008a), p. 29; RYAN, S. G. (2008b), p. 10.

[175] See FAS 157, par. 28(c)f.

[176] See RYAN, S. G. (2008a), p. 29; RYAN, S. G. (2008b), p. 10.

[177] See FAS 157, par. 24.

[178] For exceptions, see FAS 157, par. 25f.

[179] See FAS 157, par. 29.

[180] FAS 157, par. 30.

[181] See RYAN, S. G. (2008a), p. 29; RYAN, S. G. (2008b), p. 10.

[182] See Appendix II, p. 73 of this diploma thesis.

[183] See AGENCE FRANCE-PRESS (Ed.) (2008); DOUGHERTY, J. (2008); ISIDORE, C. (2008).

[184] See SIBUN, J. (2008).

[185] See RAPPEPORT, A. (2008).

[186] See AICPA (Ed.) (2007), p. 3.

[187] Similar: Christopher Hayward, finance director at the investment company Merrill Lynch: “ ‘There is a bit of this pressure, a bit of this atmosphere that says, ‘Let’s just mark it down, no one is going to question it if we mark it down.’ ’ ” SORKIN, A. R. (2008).

[188] See KATZ, D. M. (2008).

[189] See RYAN, S. G. (2008b), front page.

[190] The IIF (Ed.) is the world's leading association of financial servicers with 375 members in 70 countries, see: IIF (Ed.) (w.y.).

[191] See IIF (Ed.) (2008a), p. 16, cipher 69; RYAN, S. G. (2008b), p. 14f.

[192] See e.g. IIF (Ed.) (2008b), p. 13; RYAN, S. G. (2008a), p. 30; RYAN, S. G. (2008b), p. 10.

[193] See RYAN, S. G. (2008b), p. 11.

[194] See HERZ, R. H. (2008a), Appendix C, p. 31, cipher 17; IIF (Ed.) (2008b), p. 71.

[195] See RYAN, S. G. (2008a), p. 30.

[196] See SEC (Ed.) (2008c), p. 12f.

[197] See e.g. FSF (Ed.) (2008b), p. 4; IIF (Ed.) (2008a), p. 16, cipher 69; RYAN, S. G. (2008a), p. 67; RYAN, S. G. (2008b), p. 17, cipher 2.a.; SEC (Ed.) (2008f), time: 00:21:10 – 00:21:30, respondent: Price, J. L.

[198] See SEC (Ed.) (2008f), time: 1:04:10 – 1:04:18, respondent: Mallett III, R. B.; SHORTRIDGE, R. T. / MYRING, M. (2004).

[199] See SEC (Ed.) (2008c), p. 12.

[200] See SEC (Ed.) (2008c), p. 13.


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Universität Duisburg-Essen – Betriebswirtschaft, Wirtschaftswissenschaften
finanzmarktkrise subprime crisis financial reporting system fair value accounting hypothekenverbriefung special purpose entities ethic code



Titel: Effects of the Subprime Crisis on the U.S. American Financial Reporting System