“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)

Did You Know?

But what really is$540 billion?

Did You Know?

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.

Fair Market Accounting

Advanced Analysis and Application of Accounting Data

ACG 6315

Dr. Jian Cao

Maria Gebhardt

December 1, 2008

Overview• Recent Market Conditions

• Fair Value Accounting

• Implications for Managers and Investors

• Important Points of Interest

• Recap of Presentation

• Suggested Web Sites

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.

Recent Market Events

Source: Yahoo! Finance

Dow Jones Industrial Average2006 to Present

Recent Market Events

Consumer Confidence has also seen a significant decline.

Source: National Association of Realtors Economic Information

Recent Market Events

New Home Sales in the last 16 months:

Source: National Association of Realtors Economic Information

Recent Market Events

Unemployment has risen to a 14-year high:

Source: Bureau of Labor Statistics

Banking & Finance Industry

Fair Value Accounting

• Accounting Term

• Market Value

• If Asset

• If Liability

Fair Value Accounting

Three Levels:

Source: Federal Reserve Bank of

San Francisco

Implications : Managers & Investors

• One Uniform Model

Managers:

• Reduce Costs

• Reduce Potential Risk Exposure

Investors:

• Historical Reporting Still Has Value

Important Points of Interest

• Consistent Reporting Model

• Valuation Guides and Instructions

• Historical Reporting, Not History

• Gain Support, More Information

Recap

• Recent Market Conditions

• Stock Market

• Consumer Confidence

• New Home Sales

• Unemployment Rate

• Banking & Finance Industry Collapse

Recap

• Fair Value Accounting

• Implications for Both Managers and Investors

• Points of Interest• Consistent Reporting

• Valuation Guides

• Historical Reporting

• Gain Support

Thank you for your time.

Suggested Web sitesfor 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