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

Tesis , 2009 , 104 Páginas , Calificación: 2,0

Economía de las empresas - Contabilidad e impuestos

The Subprime Crisis 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, 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 partici-pants had expected. 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 extent 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 paper first provides a brief description of how the housing boom and the subsequent crisis evolved. The following chapter describes 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. Afterwards, the paper examines the relevant reporting concepts and disclosure requirements, provides suggestions for improvements, and assesses concerns voiced by market participants with respect to financial reporting. Subsequently, the author analyzes and judges 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.

Inhaltsverzeichnis (Table of Contents)

• 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
      • 4.1.2.1 Fair Value Hierarchy Pursuant to FAS 157
      • 4.1.2.2 Analysis of Public Criticism Related to the Fair Value Hierarchy
      • 4.1.2.3 Critical Review of Disclosure Requirements Pursuant to FAS 157
    • 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
      • 4.2.1.1 Derecognition of Financial Assets
      • 4.2.1.2 Characteristics of Qualifying Special Purpose Entities
      • 4.2.1.3 Concept and Consolidation of Variable Interest Entities
      • 4.2.1.4 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)
      • 5.1.5.1 Introduction of Overall Objectives and Aggregation Principles
      • 5.1.5.2 Selective Disclosure Amendments Regarding Derecognition
      • 5.1.5.3 Disclosure Amendments with Respect to Variable Interest Entities
      • 5.1.5.4 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
      • 5.4.1.1 Advises for Disclosures about Off-Balance Sheet Arrangements
      • 5.4.1.2 Advises for Disclosures Concerning Fair Value Measurements
    • 5.4.2 Educational Publications Regarding Fair Value Measurement
      • 5.4.2.1 Individual Publications of the FASB, AICPA and PCAOB
      • 5.4.2.2 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

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This diploma thesis examines the effects of the subprime crisis on the U.S. American financial reporting system. The main focus is on the impact of the crisis on the accounting standards for derecognition of financial assets, special purpose entities, and fair value accounting. The thesis aims to analyze the shortcomings of the existing accounting standards in light of the crisis and to evaluate the subsequent changes and clarifications made by the relevant regulatory bodies.

• The role of fair value accounting in the subprime crisis and its impact on financial reporting.
• The use of off-balance sheet arrangements, including special purpose entities, and their contribution to the crisis.
• The effectiveness of accounting standards in preventing and mitigating the effects of the subprime crisis.
• The regulatory response to the crisis, including changes to accounting standards, auditing practices, and enforcement actions.
• The implications of the subprime crisis for the future of financial reporting.

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter 1 provides an introduction to the topic of the diploma thesis, outlining the research question and the structure of the thesis. Chapter 2 presents a detailed historical overview of the subprime crisis, including its origins, key causes, and development. It examines the role of subprime mortgages, mortgage securitization, and broader economic factors in the crisis. Chapter 3 provides an overview of the U.S. financial reporting system, focusing on the key reporting standards, authoritative organizations, auditing standards, and enforcement mechanisms. Chapter 4 critically analyzes the accounting standards related to the subprime crisis, specifically focusing on fair value measurement and reporting for off-balance sheet arrangements. It examines the scope and acceptance of fair value accounting, the fair value hierarchy, and the criticism surrounding these standards. It also analyzes the accounting concepts and disclosure requirements for derecognition of financial assets, special purpose entities, and variable interest entities. Chapter 5 evaluates the actions taken in consequence of the subprime crisis, including clarifications and amendments to accounting standards, changes to auditing and ethic standards, and enforcement actions. It examines the effectiveness of these measures in addressing the shortcomings of the existing accounting standards and in preventing future crises. Chapter 6 concludes the thesis by summarizing the key findings and discussing the implications of the subprime crisis for the future of financial reporting.

Schlüsselwörter (Keywords)

The keywords and focus themes of the text include the subprime crisis, U.S. financial reporting system, fair value accounting, derecognition of financial assets, special purpose entities, variable interest entities, accounting standards, auditing standards, regulatory response, and financial stability. The text examines the impact of the subprime crisis on these key areas of financial reporting and explores the challenges and opportunities for future development.

• Universidad: University of Duisburg-Essen
• Calificación: 2,0
• Autor: Miriam Janzen (Autor)
• Año de publicación: 2009
• Páginas: 104
• No. de catálogo: V132446
• ISBN (Ebook): 9783640393497
• Idioma: Inglés
• Etiqueta: Effects, Subprime, Crisis, American, Financial, Reporting, System, Focussed, Derecognition, Financial, Assets, Special, Purpose, Entities, Fair, Value, Accounting