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Current Topics In Accounting: Relevant Issues

1772 words - 8 pages

Current Topics in Accounting: Relevant Issues Current Topics in Accounting: Relevant Issues1a. Describe the impact that implementing FAS 157 had on EMC's financial statements, based on the footnote information provided. Can you tell if the current economic conditions influenced the valuation of their financial assets and liabilities from this disclosure? If yes, what information told you this, if not, what information do you feel is missing? As an investor, would this disclosure give you enough information to be satisfied that this is a truly fair valuation? Why or why not?Fair value is an important accounting concept that is used in determining the value of liabilities and assets to be ...view middle of the document...

Therefore, EMC Corp., just like many other companies, had to determine the fair value of its assets and liabilities as indicated in the notes and explanations. Note F indicates that all the investments are mainly comprised of debt securities and are recorded at fair values. One of the things about the 2008 recession is that there was a credit crunch and therefore the fair value of its debt securities must have been affected by the prevailing situation at the time. The investments were also priced by pricing vendors, and the situation was greatly influenced by the recession. While determining the fair value of its auction rate securities, EMC used a discounted cash flow method that includes incremental discount rate since there was lack of liquidity in the market.EMC admits in Note F that it had to increase its liquidity discount margin to 5% from 3% resulting from declining market conditions. It also makes it clear that unrealized losses of $89.6 million stemmed from "… a major disruption to the global capital markets, including a deterioration of confidence and a severe decline in the availability of capital and demand for debt securities." They indicate that this resulted in depressing the securities values in most categories of investments. While explaining about the activities of auction rate securities, EMC Corp. states that "Beginning in mid-February 2008, liquidity issues in the global credit markets resulted in the complete failure of auctions associated with our auction rate securities as the amount of securities submitted for sale in those auctions exceeded the amount of bids." Also, EMC Corp. financial statements indicate that the interest rates will be determined by an interest benchmark in the short run. This means that the interest for the auction is determined by the prevailing interest rates that are influenced by the economic situation of the day.In addition, the corporation states that they are hoping that the financial markets are looking for a way to develop alternatives that will improve the liquidity. Therefore, the company is awaiting a good responce from the market, and this will influence how interest rates will change. Finally, under note F, the company indicates that the fair value of the investments in the public market is determined by the quoted prices as per the market activity.In conclusion, the information provided on the fair value of the company is enough to satisfy that the EMC Corp. provides a true fair valuation of it position in regards to the year ending December 31st 2008. Although some matters are not done in the same way as they were done in the previous year, the consistency concepts in regards to the financial statements of the company have been met by fully disclosing this information. For instance, according to the company, long and short-term investments that were available for sale, including the securities that are based on the auction rate were realized at their fair value as dictated by...

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