The subprime mortgage crisis has strengthened the need for the way and manner in which listed companies should reveal their financial data. The majority of the subprime mortgages were securitized through a new kind of risky financial instrument namely “ Collateralised Debt Obligation “ ( CDOs) and marketed in the global financial market as coupon-bearing bonds. Banks and financial institutions all around the world have invested in CDOs which infected badly the networth of these banks and financial institutions.
Critics are of the view that the main culprits were the existing accounting standards employed by the companies as they depicted the financial of the company inaccurately. There is a necessity to enhance the financial intelligibility and dissemination so as to boost the confidence of the investors. The main issue is that the majority of the companies failed to offer accurate and exhaustive dissemination of their financial worthiness, which is mirrored by incomplete dissemination of liabilities, not reflecting the real value of the assets and aggregate risk on balance sheets of companies around the world. Both the financial regulators and analysts have demanded that there should be enhanced transparency in the revelation of accounting info by companies. Banks which suffered negative net worth due to subprime mortgage crisis have called for fair-value accounting for diminished assets is to be annulled to permit the deteriorated credit markets to resurrect.
William Isaac damned the Financial Accounting Standards Board’s regulation demanding that the assets should be measured as per current market value despite the fact there existed no market for such assets. This rule would compel the companies to write off the values of such impaired assets, which would end in a decrease in equity and would hamper future funding from banks.