LOGO LOGO

Mark to Market Accounting

Group members: Jiayu An Wangyuanye Zhu

Outline
Introduction Enrons financial problem Mark to Market Accounting (MTM) Evaluation of MTM

Conclusion

Enrons financial problem

Financial fraud Jeffrey Skilling

Mark- to- Marketing Accounting

'Mark-to-market accounting refers to accounting for the fair value of an asset or liability based on the current market price of the asset of liability, or for similar assets and liabilities, or based on another objectively assessed fair value. Sample example: iphone 3G: $500 (3years ago) iphone3G: $300 (Now) Mark to market accounting: $300

Long- term Contract in Enron

Ten year contract signed 10 year contract estimate gain huge profits after 10years

Mark to Market accounting 1. Meet the expectation no change in financial statement 2. Contract fail should change the financial statement

EnronFinancial fraud

Hide the losses attract more investment Lead to accumulating of asset bubble
Bankruptcy

Which one is True Value ?

1. In 2000, the price of Enrons stock is $85 per share in 2001, $ 1 per share
70

85

2. What is the real value of the stock?

1

1
2000 2001 2001

Stock price per share of Enron

Evaluation: Historical Cost and Mark to Market

In 2000, the price of Enrons stock was 80$ per share. In 2001, the price of Enrons stock was1$ Imagine that you bought 100,000 shares of Enron in 2000. Historical Cost Accounting will be history and Fair Value Accounting will be widely used in 21th century. --------Ellen M. Heffes (IASB)

Evaluation: Mark to Market and Subprime Crisis 1

Long-term Contract

1
Investment when it was signed Potential ROI Historical Cost MTM ROI when default happened MTM after default

1000 1000 1000 5000 1000 1000 1000 1000

1000
500
* Click to add Text

Evaluation: Mark to Market and Subprime crisis 2

Conclusion
MTM played an important role in current finance system MTM is a controversial accounting model The real fair value accounting is on the way

LOGO LOGO

Your company slogan in here

www.themegallery.com

Reference
David Gwilliam, , Richard H.G. Jackson , 2008, Fair value in financial reporting: Problems and pitfalls in practice: A case study analysis of the use of fair valuation at Enron, School of Business and Economics, University of Exeter, Streatham Court, Rennes Drive, Exeter EX4 4PU, UK [Available online] 9 April 2008. Volume 32, Issue 3, September 2008, Pages 240259 Guillaume, P. Haresh, S. and Shin, H.S., 2008. Marking-to Market: Panacea or Pandoras Box? Journal of Accounting Research, 46(2), P.435-460 Magnan, M.L., 2009. Fair Value Accounting and the Financial Crisis: Messenger or Contributor? Accounting Perspectives, 8(3), P.189-213 Heaton, J. Lucas, D. and McDonald, R., 2009. Is Mark-to-Market Accounting Destabilizing? Analysis and Implications for Policy. In: Cooley, T.F. and Goodfriend, M., Carnegie-NyuRochester Conference on Public Policy. Rochester, USA 27-28 April 2009. Rochester: University of Rochester.
http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?vid=2&hid=101&sid=62f400c6-e007-4707-9ac6fedf9476398f%40sessionmgr110 https://www.google.co.uk/#hl=en&q=mark+to+market+accounting&tbs=dfn:1&tbo=u&sa=X&ei=wjKgT9aJcih0QWv962cAw&sqi=2&ved=0CCoQkQ4&bav=on.2,or.r_gc.r_pw.,cf.osb&fp=ec0d1c474e0bc945&biw= 1366&bih=642 http://www.baidu.com/s?bs=%B0%B2%C8%BB&f=8&rsv_bp=1&rsv_spt=3&wd=%B9%AB%D4%CA%BC%D B%D6%B5%BB%E1%BC%C6&inputT=10206