Mark-to-market Disclosure Ensuring Confidence Rebuilding In Accounting Stewardship

Mark-to-market accounting standard which is nearly the same [in a generalised way] as impairment of assets is one of the few factors that had contributed directly to the credit crunch [apart from overexposure to the derivative market], especially in the financial sector. Mark-to-market is utilised to reevaluate the value of holding assets, inclusive of tangible and intangible, while impairment of assets, according to the Australian Accounting Standard Board (AASB) allows only the devaluation of value and not upward valuation which is utterly bias (Technically speaking, the value of assets fluctuates throughout the accounting period, positively through asset appreciation-e.g. property price and negatively through asset depreciation- e.g. machinery due to wear and tear usage). Generally, mark-to-market is currently the moving trend in accounting measurement on the Statement of Financial Position and Statement of Financial Performance, critically adopted in the asset and liability region. It was implemented during the turn of the 20th to the 21st century, further spearheaded during the ENRON accounting scandal. ENRON implemented the use of special purpose vehicle (SPV) to shift most of it's heavy losses and constant betting in the financial markets to get rid of it from their books in order to look financially strong, when in fact the behemoth company had been over exposed to multiple heavy losses which was detrimental to the well being of it's shareholders [If they know it]. Therefore after the incident, accounting boards across the globe cohesively announce a joint motion to establish a global rule to encourage and even make it a mandatory [by necessary means] for certain companies to adopt it.

The advantage of having to adopt this rule by the view of the shareholders is that a more precise outlook would be given by the company's report. Assets, equities and liabilities are the most essential information to the shareholders. In the prudence concept, assets and revenue SHOULD be understated while liabilities and expenses SHOULD be overstated. This is to ensure a precise decision making process could be conducted based on those information. Decisions dictates the mobility and adaptability of an organisation. Therefore information should not be doctored in anyway that could jeopardised the genuine outlook that the information should had provided to the shareholders. To say, "provide undoctored information would ensure the sustainability of the organisation" is fairly easy, but how to ensure the demarcation of influence between the information collector and information provider. Could the accountant ensure that the information [Statements of accounts] are reported based on the information collected. Therefore a third party would had to interfere and that would be the accounting boards that would need to announce the new implementation of accounting rules. When every company adopts the mark-to-market rule in their reports, then every company would be playing at the same level because the value of assets are based on natural demand. But how many organisation would want to play clean? And that's where the flaws comes in. Objectively looking, the theory sounded feasible but humans are still humans that will always be flooded by greed at the look of power. The practical utility of it is still primitive.

The negative impact of implementing this rule at the turn of the century causes many large corporate company to felt loss at the drop of their market capitalisation. If a leading company was incorporated in the early 90's and at the turn of the century, was force to submit to the ruling, their market capitalisation would had fallen despite their excellent management sustainability throughout the years. That would be unfair to their shareholders. Smaller companies would had mounted an advantage with the ruling but what about previous huge corporation. Valuing a company based solely on their financial report that are affected by the mark-to-market rule as the yard-stick would be bias as the company can offer other advantages to the economy such as excellent HR management. The capitalisation of one methodology of assessing the fundamentals of an organisation would be unjustified for the entire global company network. On top of that, how would mark-to-market intangible assets work when the conventional method is yet to be proven relevant. We are talking about brand, goodwill and etc. How to solidly value a brand's value? Conventional method provides only an estimation and through the mark-to-market rule, we are implementing it on an insecurely valued asset item. A useless method valuation implemented on a useless junk, what would there be in the end? A useless valuated junk!

On the other side of the argument, by implementing the mark-to-market rule to every company regardless of their previous corporate governance methodology, we could weed out those companies that aren't genuinely having the stated market capitalisation. In other words, we can eliminate fraudulent companies. The greatest example of it is ENRON. The next of keen to that position is Lehman Brothers. Commercial papers were mark-to-market causing substantial losses in Lehman's derivatives exposures, which ultimately causes the fall of the 150 years financial institution. It also tells off the corrupted governance of previous financial giants, such as Barclays of United Kingdom and Bear Sterns of America.

The year 2008 has been carved in the history books as the most troubled years since the Great Depression of 1930. Pummeled not only by natural disasters and terrorist attacks [India's financial hub, Mumbai] but also the mammoth unpredicted size, credit crunch.

The picture above is from an email I received. The entire email show the wonderful picture of mother nature taken from various countries. This particular struck my mind because it was the only picture that I had ever taken that gave me more inspiration to start taking scenic pictures. The place stated in the email was 'scenery of Europe' but to be precise its Salzburg, Austria. I went there before and the view is exactly the same. If you closely at the bridge there was where I stood to take a shot of the long river with both banks filled with medieval age buildings. I was surprised czuse all the while I thought pictures forwarded through mails are usually photoshop products, but this one blew of my mind. It was real and if given the chance, I'll head back there for a second time. I'll ty to find the picture I took back then to compare with this picture. It's 99.99% the same view, especially the blue sky. Wonders of the world. Wow!