The document discusses the impacts of recent market events and the use of fair value accounting. It notes that major banks had $540 billion in level 3 assets and provides an image to illustrate the scale of that amount. It then discusses how fair value accounting involves assigning market values to assets and liabilities using three levels, and the implications this has for both managers who must reduce costs and risks, and investors who still value historical reporting. The presentation recaps the recent market conditions of falling stock prices, consumer confidence, and new home sales as well as rising unemployment, and suggests additional resources on the topic.

1. Did You Know?
“Did you know that the Level Three
Assets totaled an incredible
$540 billion just for Morgan
Stanley, Goldman Sachs, Merrill
Lynch, Lehman Brothers, JPMorgan
Chase, and Citigroup.”
Source: (Moyer, 2008)

2. Did You Know?
But what really is
$540 billion?
This image is of just
one million dollars.
For $540 billion, you would need
540,000,000 hundred dollar bills, or
54,000 piles of one million dollars.

3. Fair Market
Accounting
Advanced Analysis and Application of
Accounting Data
ACG 6315
Dr. Jian Cao
Maria Gebhardt
December 1, 2008

4. Overview
• Recent Market Conditions
• Fair Value Accounting
• Implications for Managers
and Investors
• Important Points of Interest
• Recap of Presentation
• Suggested Web Sites

5. Recent Market Events
Significant events have greatly
impacted the market.
The stock market reached over
14,000 points in October 2007, yet
plummeted to under 10,000 points
during October and November 2008.

6. Recent Market Events
Dow Jones Industrial Average
2006 to Present
Source: Yahoo! Finance

7. Recent Market Events
Consumer Confidence has
also seen a significant decline.
Source: National Association
of Realtors Economic Information

8. Recent Market Events
New Home Sales in the last 16
months:
Source: National Association
of Realtors Economic Information

9. Recent Market Events
Unemployment has risen to a 14-year
high:
Source: Bureau of Labor Statistics

10. Banking & Finance Industry

11. Fair Value Accounting
• Accounting Term
• Market Value
• If Asset
• If Liability

12. Fair Value Accounting
Three
Levels:
Source: Federal
Reserve Bank of
San Francisco

13. Implications : Managers & Investors
• One Uniform Model
Managers:
• Reduce Costs
• Reduce Potential Risk Exposure
Investors:
• Historical Reporting Still Has Value

14. Important Points of Interest
• Consistent Reporting Model
• Valuation Guides and Instructions
• Historical Reporting, Not History
• Gain Support, More Information

15. Recap
• Recent Market Conditions
• Stock Market
• Consumer Confidence
• New Home Sales
• Unemployment Rate
• Banking & Finance Industry Collapse

16. Recap
• Fair Value Accounting
• Implications for Both Managers and
Investors
• Points of Interest
• Consistent Reporting
• Valuation Guides
• Historical Reporting
• Gain Support

17. Thank you for your time.
Suggested Web sites
for further information:
SEC – Spotlight on
Fair Value Accounting:
http://www.sec.gov/spotlight/fairvalue.htm
FASB – Summary of Statement
No. 157:
http://www.fasb.org/st/summary/stsum157.shtml
AICPA – FAQs About Fair Value
Accounting:
http://www.aicpa.org/MediaCenter/fva_faq.htm