Discussion Issue 1 Essay

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In the latest subprime mortgage problems, the accounting profession is going to take some responsibility as it looks basic principles of accounting were ignored once issuing subprime mortgage loans. A few these forgotten principles contain unbiased views of auditors as well as reasonable value accounting. As known by VanDenburgh and Harmelink (2008), " It is discouraging to discover that basic bad debt accounting practices were likely certainly not adeptly utilized or audited in the subprime lending sector. ” In my opinion, if generally accepted accounting practices was followed, the subprime home loan may not have already been avoided, nevertheless the depths of its gets to could have been reduced.

One of the primary accounting concepts readily ignored in the mortgage loan crisis is that of fair value accounting. Here, the price of property was recorded at its first sale value and then noted at a different sort of value when the asset was transferred to another entity, as a result inflating the " books” of lenders. This pumpiing was caused by willful neglect of the lenders to effectively evaluate the good value of subprime financial loans by not taking into account fundamental factors during these mortgages including the buyers' capacity to repay the debt (Kothari & Lester, 2011). Auditors as well had a hand in the subprime mortgage crisis. An example of this can be the case of New Century Economical, one of the most significant subprime lenders. New Hundred years Financial overstated their profits and counted on these exaggerated profits to safety net them from the blow of defaulted mortgages on bothered home loans. The organization responsible for auditing New 100 years Financial, KPMG, still proceeded with the well known auditor's " stamp of approval” (‘Lender Failed', 2008). This, in turn, gave buyers who bought these subprime mortgages phony confidence inside the lenders. To prevent the financial crisis of the subprime mortgage bad luck, lenders and auditors needs to have worked jointly more vigilantly and also needs to have...

References: Kothari, S. L. & Lester, R. (2011). The function of accounting in the financial crisis: Lessons for future years. Retrieved from http://ssrn.com/abstract=1972354

VanDenburgh, W. M. & Harmelink, G. J. (2008). Accounting effects of the subprime meltdown. The peril of forgetting the basic principles. The CPA (CERTIFIED PUBLIC ACCOUNTANT) Journal, January 1, 2008. Retrieved coming from http://www.uic.edu/classes/actg/actg593/Readings/Credit-Crisis-09/Accounting-Implications-of-the-Subprime-Meltdown. pdf

The modern York Times. (2008, April 14). A lender failed: Did its Auditor?. The brand new York Occasions. Retrieved coming from http://dealbook.nytimes.com/2008/04/14/a-lender-failed-did-its-auditor/