What can Restatements Tell Us About Fair Value Reporting and the Financial Crisis of 2008?

34 Pages Posted: 5 Jan 2011

See all articles by Anthony H. Catanach

Anthony H. Catanach

Villanova University - School of Business; The American College

Bob Kemp

affiliation not provided to SSRN

Date Written: October 1, 2010

Abstract

Several recent studies have empirically examined the claim that fair value accounting (FVA) contributed to the financial crisis of 2008. Most of this research relies on stock price and/or financial statement data from commercial banks to investigate the role played by FVA in this financial meltdown. To date, the consensus suggests that FVA played little or no role in the crisis. This study informs the FVA debate by examining a broader sample of financial institutions that includes banks, savings and loans, and insurance companies to determine if they experienced any difficulty implementing fair value reporting between 2007 and 2009. This research is based on the premise that (1) given the subjectivity inherent in valuing many financial instruments, there is a greater likelihood that financial institutions will make evaluation errors, and (2) such errors, if significant, will manifest themselves in restatements of previously filed financial reports. Consequently, an examination of financial institution restatements between 2007 and 2009 should provide some insights into the FVA debate. The results reveal few restatements for FVA issues and suggest that financial institutions experienced little or no difficulty with fair value reporting requirements. Instead, bank and insurance companies appear to struggle with operating cash flow classification and basic bookkeeping issues. This study’s findings should interest standard setters concerned about the ability of financial institutions to comply with recently proposed FVA standards for financial instruments. It also provides auditors and regulators with insights into the basic transaction processing deficiencies of financial institutions.

Keywords: fair value accounting, mark-to-market, restatements

JEL Classification: G21, G22, M41

Suggested Citation

Catanach, Anthony H. and Kemp, Bob, What can Restatements Tell Us About Fair Value Reporting and the Financial Crisis of 2008? (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=1734490 or http://dx.doi.org/10.2139/ssrn.1734490

Anthony H. Catanach (Contact Author)

Villanova University - School of Business ( email )

Dept. of Accountancy
Villanova, PA 19085
United States
610- 519-4825 (Phone)
610-519-5204 (Fax)

The American College ( email )

Bryn Mawr, PA 19010
United States

Bob Kemp

affiliation not provided to SSRN ( email )

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