Discuss about the Global Financial Crisis In Various Ways.
Accounting standards are surely involved in the creation of global financial crisis in various ways. It is the presence of the accounting that guides the destiny of the economy. An economy that has strong accounting standard and regulations are able to provide a strong stability and hence, leads to proper course of conduct. The most obvious are the corporate financial reporting requirements that governed the evaluation of off-balance sheet entities and assets. The reporting system needs to be intact so that any deficiency can be negated. Hence, the corporate reporting plays a leading role in assessing the assets. The significance of such accounting rules is underlined by the ideology that the survival and solvency of many financial institutions rely on how accountants assess bank assets and the extent to which auditors necessitate entities to accommodate in the off-balance sheet entities and consolidation perimeter (Brown, 2011). This generates dubiousness regarding the potential volatility of financial statements that may not cause a fair amount. Hence, accounting standards resulted in amplifying the illusion of economic growth and assisted in enhancing the value of assets’ spiral balances. These also play a role in enhancing the vulnerability of entities in the procedure of attracting capital from various financial institutions and facilitating enhanced cash outflows. As a response to the global financial crisis, the IASB initiated several actions (Steven & Yachang, 2015). Firstly, it published various proposals to improve and strengthen the requirements for recognizing which entities a company has authority over. Furthermore, the board also endeavored to frame proposals for covering derecognition of liabilities and assets. Secondly, the board has attempted in the acceleration of efforts to cater to a wider range of impairment issues on an internationally consistent basis. For such purpose, the board has asked its staff to consider collectively how present requirements in relation to the reversal of impairment losses may be altered (Brown, 2011). Thirdly, the IASB has also ensured that the embedded derivatives are evaluated and separated if the financial assets are reclassified. For such purpose only, the board amended the IASB 39 (financial instruments to allow reclassification of specific financial assets).
On a whole, policy-makers like the IASB have sought to address the destruction done to the financial stability and economies by implementing a huge set of financial reforms, both at international and local level but their mission encounters from the same kind of issue that the aim of framing a single set of accounting standard aimed to contribute. Both the objectives rely on traditions and national attitudes. Hence, the role played by both the bodies is similar to each other. Further, these rely on how well formal institutions assist and enforce adherence to accounting standards to ensure the reliability of numbers. In all probability, the numbers can be made reliable if the accounting standards can prove to be of high dominance. Weak accounting standards leads to dilution of the efforts and the correct result cannot be attained. Overall, the mission of achieving financial stability is challenging because change is not only required in formal institutions but also in traditions, cultures, etc that involve transactions betwixt collaborates.
In relation to the previous accounting standards, it can be noticed that distinct viewpoints of corporate financial reporting made it complicated to motivate the convergence of accounting standards. The information that is provided by the accounting standards does not fall in the correct place and hence, a difference can be observed. The mission statement in the prior accounting standards depicts that IASB shall frame a single set of enforceable and high-quality standards that can produce enhanced quality, comparable, and transparent financial information. However, when the IASB explained such high-quality accounting information and standards in its publications it failed to offer a concise explanation of such concept. The reason behind this can be attributed to the fact that its publications often provided an explanation of characteristics and other concerns associated with the consequences of high-quality financial information. Therefore, the emphasis even spreads on the effect caused by the financial information. Besides, even academic researchers failed to ascertain whether the quality of financial information had enhanced after the implementation of IFRS. In addition, they also encountered difficulties while defining the ideology of accounting quality (Names & Nobes, 2010). Therefore, the ultimate motive of the IASB is to enhance the quality of financial information on a worldwide basis. The provision of IASB is to present the facts in a manner that will lead to better understanding and enhance the overall concept. However, the same cannot be attained on its own because the board can only offer significant building blocks for the same. Other building blocks consist of institutional attributes reflecting the quality of investor protection and enforcement that can only be provided by supervisors and national regulators (Chapman, 2009). Hence, there are various building blocks present and that needs to be taken into consideration. However, the recent changes in the accounting standards by the IASB have assisted in solving some of these potential issues.
IFRS 13 was the outcome of a convergence betwixt the FASB and the IASB. However, sooner both the boards started framing their fair value measurement standards separately. Nevertheless, based on the perspective of IASB, the reasons behind the actions to improve fair value accounting can be attributed to four main reasons (Sunder. Firstly, IASB intended to frame a single set of requirements for measurement of fair value so that complexity can be reduced and consistency in the application of such accounting can be enhanced. This can further result in maximizing the comparability of information in the company’s financial statements. When the financial information is compared it leads to better course of conduct and helps in deriving at the required result. Secondly, IASB aimed to clarify the definition of such fair value accounting and other associated guidance so that the measurement objective could be communicated efficiently. It is important for the IASB to provide correct as well as meaningful information that will help in providing the best information. Thirdly, to enhance the convergence of US GAAP and the IFRS standards and lastly, to maximize disclosure about such accounting so that users can evaluate valuation methods used to establish fair value measurements (Walker, 2011). Fair value measurements helps in maximizing the disclosure that helps the parties in getting the correct or the desired information.
The AASB (Australian Accounting Standards Board) had responded to the global financial crisis by taking into account more efficient and strict principles of accounting that includes the IFRS standards and GAAP principles. Moreover, it can also be noted that accounting issues have been reviewed by the IASB so that clarifications regarding IFRS can be made in response to the present market conditions. The actual cause of review and the response indicates that the clarification has been provided in this regard. This is the reason why the AASB has also contributed to the efforts made by IASB. In other words, the board believes that Australian constituents must possess the same treatments as are present within the IASB. Nevertheless, this can assist the board to address any issues that are associated with the accounting standards highlighted by the global financial crisis. Hence, the organization is about to get a clear picture of the entire environment. This not only proves to be of great help to the end users but also assist the board in taking correct decisions for the appropriate time
In July 2001, the AASB framed an Exposure Draft (ED 102) ‘International Convergence and Harmonization Policy’ in order to merge with the policies framed by the IASB. International harmonization and convergence mean a policy of operating with other bodies to revise or develop accounting standards that can contribute to the development of a single accounting standard for global use (Maria, 2011). The main objective of AASB’s convergence policy is to coordinate and pursue the objectives of IASB. The entire course of action is done in tune to the benefit of the company. Nevertheless, unlike the IASB standards wherein the accounting standards are applicable only to profit-making entities (including government entities), the standards of AASB are not so influenced by the same hence, IASB stands in a very low position and needs to connect with the their parts . This is because the AASB standards are applicable to not only entities complying under the Corporations Act 2001 but also to not-for-profit and public sector entities (Pope & McLeay, 2011). The region under the concept indicates that the concept if available for all the companies and hence, needs to provide all the accurate information that Overall, the AASB standards are more or less equivalent to the standards framed by the IASB and with the due passage of time; the IASB will make and continue to frame variations to these standards that include issuance of new ones (Walker, 2010). On the other hand, the AASB is influenced by the IASB standard, as it is committed to ensuring that AASB equivalent to the same will be readily issued by them.
References
Brown, T. (2011). International Financial Reporting Standards: What are the benefits. Accounting & Business Research, 41(3), 76-83
Chapman, C.S, Cooper, D. & Miller, P (2009). Accounting, organizations, and institutions. Oxford: Oxford University Press.
Maria, W 2016, The “Big” Consequences of IFRS: How and When Does the Adoption of IFRS Benefit Global Accounting Firms?. The Accounting Review 91(4), 1257-1283
Nobes, C. Parker, R (2010). Comparative International Accounting. FT Prentice Hall.
Pope, P.F. McLeay, S.J. (2011). The European IFRS Experiment: Objectives, Research Challenges and Some Early Evidence. Accounting and Business Research, 41(3), 31-43
Sunder, S. (2011). IFRS Monoply: Pried Piper of Financial Reporting’, Accounting and Business Research, 41(3), pp. 22-41
Steven, Y & Yachang, Z. (2015). Accounting Comparability and the Accuracy of Peer-Based Valuation Models. The Accounting Review 90(6), 2571-2601.
Walker, M. (2010). Accounting for varieties of capitalism: the case against a single set of standards, The British Accounting Review, 42(3), 137-152
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