1EI_1 - Horngren'S Financial And Managerial Accounting

Question

As a result of the recent mortgage crisis, many banks reported record losses to their mortgage receivables and other assets based on the decline in these assets’ fair values. 

Requirements 

1. What would the effect be to stakeholders if such losses were not reported in a timely way? 

Step-by-Step Solution

Answer

Answer

If such losses are not reported, they will affect the stakeholders' decisions.

Step 1: Definition of Stakeholders

The person having an interest in the company that can affect the business entity and can also get affected by the business entity is known as a stakeholder. 

Step 2: Effect on Stakeholders

If the losses are not recorded, it will misrepresent the business's financial statement and affect the stakeholders' decisions. For example: if the losses are not reported, then the stakeholder will wish to increase their investment in the bank, and if the losses are reported, then they will not increase their investment.