Accounting Implications of a Global Financial Crisis

The term ‘Global Financial Crisis’ means economic scarcity where there is a continuing drawback against stable strategic economic growth in the world. The underlying background to the crisis was reported in business magazines for many months prior to September 2008, with an emphasis on the financial stringency of US investment banks, insurance companies, and mortgage securities companies. and the world as a result of the crisis of high-risk companies. . Presenting with some vicious criticism against prevailing business failures from improper application of risk controls for bad debt, debt insurance collateralization, and fraud, the large financial institutions that predominate in the United States and other regions of the world have faced a credit crunch and lazy progression. in economic activity. The shocks quickly updated and emerged into a global shock that resulted in a series of European bank failures and declines in various stock market indices, relevant with numerous declines in the market value of equities and commodities. The subprime crisis reached a critical stage during the first week of September 2008, characterized by severely tight liquidity in global credit markets and threats of insolvency for investment banks and other institutions. It is noted by critical analysis that the reserve position of banks in the Federal Reserve System began to rise above required levels of about $10 billion in early September 2008, just after the Democratic and Republican National Conventions, and just before the stock market crash and the presidential debates.

Consequently, in the face of such a global financial crisis, there was a great impact on the accounting strategy and in reference to the economics of world trade; there was a shortage of resources to measure the strength of the current position of financial institutions. To such an adverse connotation to Accounting, the International Accounting Standards Board and the Financial Accounting Standards Board today announced complementary measures in response to the global financial crisis following their joint meeting held in London on 23-24 March 2009. These postulates have helped establish the original form of financial statements. In the previous format of the balance sheet strategy, there was no room to reflect some economic events such as inflation, interest rate, and declining mortgage matters, but in the current reform strategy, enough changes have been made based on in accounting participation with so many revolutionary altercations. In reference to the global financial crisis, the IASB was accepted in 2001 and is the standard setting of the International Accounting Standards Committee Foundation, and a non-profit private sector self-regulatory organization. The IASB is committed to assembling, in the public interest, a single set of high-quality global accounting standards that provide clear and equivalent high-quality general purpose financial statements. With regard to the objective, the IASB conducts wide-ranging public consultations and seeks the cooperation of intercontinental and national bodies around the world. Its 14 members come from nine countries and have a variety of professional backgrounds. They are appointed by and accountable to the Trustees of the IASC Foundation, who must select the best available mix of technical expertise and diversity of international business and market experience. Since 1973, the US Financial Accounting Standards Board has been chosen as the private sector organization to establish accounting and financial reporting standards. Those standards govern the preparation of financial reports and are authorized by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are indispensable to the resourceful operation of the cost-cutting measure because investors, creditors, auditors, and others rely on credible, transparent, and comparable economic information. In structuring the ongoing work, the two boards agreed to work jointly and expeditiously toward common standards dealing with off-balance sheet activity and accounting for financial instruments. They will also work to analyze bad loan accounting within the financial instruments project. In addition, the boards agreed to issue proposals to replace their respective financial instrument standards with a common standard in a matter of months, not years. As part of this project, the boards will examine credit loss accounting, including expected and incurred loss models. The boards will continue to draw on the expertise provided by the Financial Crisis Advisory Group (FCAG), a high-level advisory body formed to guide the boards in their joint response to the financial crisis. The composition of the FCAG includes current and former investors, regulators, central bankers, finance ministers, and others from industry and the public sector.

The FCAG was established by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to advise the two boards on the implications of the global financial crisis on standard setting. and possible changes in the global regulatory environment. It is made up of 18 senior leaders with extensive international experience in financial markets, along with official observers representing the world’s leading banking, insurance and securities regulators. The chairs and some other board members of the IASB and FASB also participate in the discussions. The FCAG has considered how improvements in financial reporting can help increase investor confidence in the financial markets and is seeking to identify, and provide information and advice on, significant accounting matters that require the boards’ immediate attention or consideration. in the longer term. . Topics discussed include, but are not limited to, fair value accounting, loan provisioning, and structured entities and other off-balance sheet vehicles. The FCAG was also interested in exploring board oversight, the process of setting standards in demanding situations, and the benefits of convergence of the two boards’ standards. As part of its work, the FCAG is considering several studies related to the financial crisis, such as the study by the US Securities and Exchange Commission and the work of the Financial Stability Forum to address procyclicality in the financial system. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) this week announced the membership of the Financial Crisis Advisory Group (FCAG). The FCAG is the high-level advisory group established by the boards to consider financial reporting issues arising from the global financial crisis. The group includes recognized leaders from the business and government fields with extensive experience in international financial markets.

In view of the above discussion, it is clear that the criteria set by the Accounting standard must now focus on ensuring that IFRS continues to be a high quality principles-based accounting language. Global trade authorities need to be involved in the standard setting process as more and more countries adopt IFRS. The steps relevant to the financial crisis support an assurance of a joint approach to the financial crisis and the overall goal of seeking convergence between International Financial Reporting Standards and US generally accepted accounting principles (GAAP). No one can deny the fact that, in relation to the global financial crisis, the IASB and FASB have an important role to overcome the difficulties related to the global economic crisis. They have taken active steps to measure the risks and uncertainty of these areas. The discussion required for those with experience in IFRS to share their views and knowledge. In areas like accounting, being too prescriptive with blanket measures could backfire. Issuing guidance from those results in mechanical rule following could be a recipe for disaster. Setting standards based on underlying principles and professional judgment have a vital role to play and must not stifle recovery. If this can be achieved through the consultative process, it should be possible for private and public sector parties to contribute to the evolution of individual standards, from the early standards setting stage.

In view of the above, it is clear that in most cases, competent authorities should subsequently be in a position to give their support to new standards, since they are issued by the International Accounting Standards Board. However, the strategy of change reforms in the current financial reporting system concludes that while the crisis has revealed flaws in the global regulatory system itself, the worrisome authoritarian Board is still well positioned to play an active role in designing new global structures and ensure that they are transparent and accountable and that developing countries and others are represented, in order to increase the legitimacy of the decision-making process.

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