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Accounting Implication of a Global Financial Crisis
The term ‘Global Financial Crisis’ refers to a financial crisis where the world is consistently short of the strategically stable economic growth. The background to the crisis was reported in business journals for several months prior to September 2008, emphasizing the financial tightening of US and global investment banks, insurance companies, and mortgage securities companies. . Misuse of risk controls for bad loans, co-lateralization of loan insurance and fraud, introduced to some of the worst critics of the business failures dominated by large financial institutions in the United States and other regions of the world, faced a credit crunch and sluggish progress. in economic activity. A number of European bank failures and declines in various stock indexes were associated with numerous declines in the market value of equities and commodities, with the results quickly updating and emerging in a global shock. The sub-prime mortgage crisis reached its critical stage in the first week of September 2008, characterized by severely compressed liquidity in global credit markets and threats of bankruptcy to investment banks and other institutions. A critical analysis shows that banks’ reserve positions in the Federal Reserve System began to rise above the required level by about $10 billion in early September 2008, after and just before the Democratic and Republican National Conventions. Stock market crashes and presidential debates.
As a result of such a global financial crisis, there was a major impact in terms of accounting policy and the global trade economy; There was a lack of resources to measure the strength of the existing position of financial institutions. For such an adverse interpretation of accounting, the International Accounting Standards Board and the Financial Accounting Standards Board have announced complementary steps in response to the global financial crisis following their joint board meeting held in London on 23 and 24 March 2009. Helped in establishing the original form of financial statement. The earlier format of the balance sheet strategy did not have scope to reflect certain economic phenomena like inflation, interest rates and mortgage depreciating cases but in the current reform strategy, sufficient changes have been made based on the accounting implication with many revolutionary arguments. In the context of the global financial crisis, the IASB was adopted in 2001 and is the standard-setting establishment of the International Accounting Standards Committee Foundation, and is a self-regulatory private sector, not-for-profit organization. The IASB is determined to mount, in the public interest, a single set of high quality, global accounting standards that provide a high standard of crystal clear and equivalent general purpose financial statements. In relation to the objective, the IASB conducts extensive public consultation and seeks the cooperation of intercontinental and national bodies around the world. Its 14 members come from nine countries and have diverse professional backgrounds. They are appointed by and accountable to the IASC Foundation Trustees, who must select the best available combination of international business and market experience and technical expertise and diversity. Since 1973, the US Financial Accounting Standards Board has been the body chosen to establish private sector financial accounting and reporting standards. Those standards guide financial reporting and are recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are indispensable to the resourceful operation of cost-cutting measures because investors, creditors, auditors and others rely on reliable, transparent and comparable financial information. In framing the ongoing work, the two bodies have agreed to work jointly and expeditiously towards common standards dealing with off-balance sheet activities and accounting for financial instruments. He will also work on the analysis of loan loss accounting in the Financial Instruments Project. Furthermore, boards have agreed to issue proposals to replace their respective financial instrument standards with common standards over a period of months, to years. As part of this project the boards will conduct a loan loss audit, including an incurred and expected loss model. Boards will continue to draw on the expertise provided by the Financial Crisis Advisory Group (FCAG), a high-level advisory body established to guide 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.
FCAG was established by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to advise both boards on the standard-setting effects of the global financial crisis and potential changes in the global regulatory environment. It consists of 18 senior leaders with extensive international experience of financial markets, official observers representing major global banking, insurance and securities regulators. The chairmen of the IASB and FASB and some other board members also participate in the discussions. The FCAG has considered how financial reporting reforms can help increase investor confidence in the financial markets by identifying and providing input and advice on significant accounting issues that require immediate attention or long-term consideration by boards. . Topics discussed include, among others, fair value accounting, debt provision, and structured entities and other off-balance sheet vehicles. The FCAG was also interested in the oversight of the boards, the standard-setting process in exigent circumstances, and exploring the benefits of convergence of standards between the two boards. As part of its work, FCAG is considering various studies related to the financial crisis, such as the US Securities and Exchange Commission’s study of ‘mark-to-market’ accounting, the UK Financial Services Authority’s Turner Review of the global banking crisis, and the Financial Stability Forum’s procyclicality in the financial system. Addressing work. 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). FCAG is a high-level advisory group set up by boards to consider financial reporting issues arising from the global financial crisis. The group includes recognized leaders in business and government with a wide range of experience in international financial markets.
From the above discussion, it is clear that the focus should be on ensuring that IFRS is a high-quality principles-based accounting language as defined by accounting standards. As more countries adopt IFRS, global trade authorities need to be involved in the standard setting process. Steps related to financial crisis assure a joint approach to financial crisis and the overall goal of finding convergence between International Financial Reporting Standards and US Generally Accepted Accounting Principles (GAAP). There is no denying the fact that in the context of the global financial crisis, the IASB and FASB have a significant role to play in addressing the challenges associated with the global financial crisis. They have taken proactive steps to measure risks and uncertainties in these areas. Discussion required for those with experience of IFRS to share their views and knowledge. In a field like accounting, being too prescriptive with global measures can backfire. Issuing guidance with mechanical regulatory-compliance implications can be a recipe for disaster. Standard setting and professional judgment based on fundamental principles have an important role to play and should not impede recovery. If this can be achieved through a consultative process, it is possible for public and private sector parties to contribute to the evolution of individual standards from the initial standard setting stage.
In view of the above it can be seen that in the majority of cases, the relevant authorities should be in a position to give their support to the new standards issued by the International Accounting Standards Board later on. However, the reform strategy of changing the current financial reporting system concludes that while the crisis has exposed the flaws in the world’s own regulatory system, the relevant authorities are still able to play an active role in creating and ensuring the new global structure. Developing countries as well as others are represented to enhance transparency and accountability and legitimacy of decision-making processes.
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