This post comes to us from Mary Barth, Professor of Accounting at Stanford University, and Wayne Landsman, Professor of Accounting at the University of North Carolina at Chapel Hill.
In our paper, How Did Financial Reporting Contribute to the Financial Crisis? forthcoming in the European Accounting Review, we scrutinize the role that financial reporting for fair values, asset securitizations, derivatives, and loan loss provisioning played in contributing to the Financial Crisis. Because banks were at the center of the Financial Crisis, we focus our discussion and analysis on the effects of financial reporting by banks. We begin by discussing the objectives of financial reporting and bank regulation to help clarify that information standard setters require firms provide to the capital markets and information required by bank regulators for prudential supervision will not necessarily be the same. This distinction is important to understanding why financial reporting played a limited role in contributing to the Financial Crisis.