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Part of the reason for Enron’s collapse was its adoption of “mark to market” accounting practices. ...

Part of the reason for Enron’s collapse was its adoption of “mark to market” accounting practices.  What is “mark to market” and how did contribute to the decline of Enron?  Do you think that “mark to market accounting should be legal for corporations to use? Why?

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Answer #1

Mark to Market:

Mark to Market (MTM) is the process of daily revaluation of asset or liability at Fair value instead of book value.

Issues:

Firstly, In some cases fair valur of accounting does not result in accuracy.

Secondly, Perpetual change of environment factors and unpredicted change of internal environment.

Lastly, In some cases MTM might not result in the best valuation of the asset.

Benefits:

Ordinary losses may be deducted in full against any type of tax return income.

To assess current finanicfi position of the Company

Helpful in decision making process

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