Preview

Effects of the Global Financial Crisis on the International Accounting Standards

Powerful Essays
Open Document
Open Document
2091 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Effects of the Global Financial Crisis on the International Accounting Standards
Abstract

Since July 2007, leading economist believe that this has been the worst financial crisis since the great depression. This essay outlines various viewpoints and influences in respect to the paradigm. Firstly it defines, Global Financial Crisis (GFC) and the impact it has had on International Accounting Standards in regards to implementation and use of their accounting regulations. It also examines The Fair Value Measurement in accordance to the effect it has on the GFC and how the interpretation of fair value is the problem not the method itself. The Positive Accounting Theory (PAT) is also discussed and analysed in terms of it being the dominant theory to justify accounting regulations and standards (Anonymous. 2008a).

Introduction

Due to the impact that the Global Financial Crisis (GFC) has had on the economy around the world, there has been doubt concerning the use and implementation of the International Accounting Standards. A number of people have blamed and criticised the International Accounting Standard Board (IASB) and their regulations. Retrospectively there are some that defend the IASB and believe it has no negative effect on the crisis. An area that has been deeply criticised is the Fair Value Measurement and blames it for the negative effects felt during the financial crisis. Particular individuals believe there is no alternative but to use the Fair Value Measurement. This view is opposed by others who believe it should be changed all together and then the view that there should be modifications made to the fair value regulations to help solve the problems.
The Global Financial Crisis

The Global financial crisis (GFC) is described as an “economic scarcity where there exists a continuous drawback against strategic stable economic growth in the world” (Anonymous. 2009b). Smith (2009) depicts that the financial crisis was created by the real estate bubble burst in the U.S.A, in which caused banks to lower their lending standards and which
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Best Essays

    2008 Financial Crisis - Lehman Brothers, Fannie Mae and Freddie Mac
    • 3431 Words
    • 14 Pages

    2008 Financial Crisis - Lehman Brothers, Fannie Mae and Freddie Mac

    * Foster, J. B. (2009) – The Great Financial Crisis: Causes and Consequences – Monthly Review Press…

    • 3431 Words
    • 14 Pages
    Best Essays
    Read More
  • Better Essays

    Fasb and the Standard-Setting Process
    • 1208 Words
    • 5 Pages

    Fasb and the Standard-Setting Process

    Financial Accounting Standards Board (FASB) is a seven member board that consists of accounting professionals who establishes and communicates financial accounting and reporting standards known as generally accepted accounting principles (GAAP) in United States. The standards’ quest is to govern the preparation of the corporate financial reports and hence ensuring transparency, credibility and understandability of the financial statements. To achieve these, there is need to set guidelines that create uniformity in the preparation of the statements across the region. In this paper, we will focus on the FASB’s standard setting process and define the authoritative sources of accounting information that the board refers in setting the standards. More importantly, we are going to describe the general objectives of the financial reporting and the role of ethics in the statements’ reporting.…

    • 1208 Words
    • 5 Pages
    Better Essays
    Read More
  • Best Essays

    The EU's Adoption of IFRS
    • 1953 Words
    • 8 Pages

    The EU's Adoption of IFRS

    The harmonization of accounting standards across countries has been engendered by the globalization of politics and markets. In the past 20-30 years the growth in international trade fostered by increased Foreign Direct Investment flow of capital and development of technology has led to multinational firms establishing presence across the world. This has led to these firms being listed in foreign stock exchanges; this has fuelled the desire to have common international standards that could be understood easily and followed across nations.…

    • 1953 Words
    • 8 Pages
    Best Essays
    Read More
  • Powerful Essays

    Accounting Standards Boards Paper 4
    • 1448 Words
    • 42 Pages

    Accounting Standards Boards Paper 4

    References: Financial Accounting Standards Board (FASB). 2002a. Proposal: Principles-Based Approach to US Standard Setting. File Reference No. 1125-001. Norwalk, CT: FASB. Retrieved from http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176154526495 Hail, L., Leuz, C., and Wysocki, Peter D., Global Accounting Convergence and the Potential Adoption of IFRS by the United States: An Analysis of Economic and Policy Factors (February 25, 2009). Retrieved from http://www2.lse.ac.uk/accounting/news/MAFG/Leuzpaper.pdf Hinson, Y. (2009) Differences Between IFRS and GAAP Could Create Challenges for Educators. Retrieve from http://www.corporatecomplianceinsights.com/2009/differences-ifrs-gaap-challenges-educators/ Schroeder, R.G., Clark, M. W., & Cathey, J. M., (2005). Financial Accounting Theory and Analysis. 8th edition. John Wiley & Sons, Inc. Whittington, G. (2008). Fair Value and the IASB/FASB Conceptual Framework Project: An Alternative View. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6281.2008.00255.x/full…

    • 1448 Words
    • 42 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Mark to Market Accounting
    • 3154 Words
    • 13 Pages

    Mark to Market Accounting

    Economic principle’s rationale for requiring guidance for financial institutions is to use mark-to-market accounting or fair value accounting on their financial reports. With the current economic crisis, questions have been raised as to whether or not fair value accounting is making this crisis worse. In this paper I review the history of fair value accounting and the ethics behind whether fair value accounting gives an accurate picture or is it causing a need for higher capital requirements and unnecessary concern with investors. There is a need for transparency. It is Accounting Standards and Ethics that helped restore the investors trust after the corporate scandals, now with financial institutions wanting to suspend the mark-to-market accounting it would further decrease the trust investors have.…

    • 3154 Words
    • 13 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    2007-2008 Financial Crisis
    • 1317 Words
    • 6 Pages

    2007-2008 Financial Crisis

    Economists and scholars spend years dissecting financial markets and evaluating the causes of booms and busts. Throughout United States history there have been multiple economic booms that were underestimated and followed by recessions. In the situation of the 2007-2008 global financial crisis many culprits have been identified as causes, such as loose monetary policy, credit booms, deregulation, over complexity, and greed. Since the economic boom was solely dependent on weak policies and misconceptions, this leads me to believe prevention was possible with adequate regulatory policy, risk assessment and clarifications for commercial banks.…

    • 1317 Words
    • 6 Pages
    Powerful Essays
    Read More
  • Satisfactory Essays

    Case Study 1-6 Accounting in Crisis
    • 559 Words
    • 3 Pages

    Case Study 1-6 Accounting in Crisis

    Reliable financial reporting is important to businesses and investors especially when a financial crisis forms and a company’s fundamentals are put to the test. In the early 2000’s the U.S and Canada were affected by the recession that had spread to other countries including Russia, Europe and Japan (Wikipedia, 2013). Many believe that the recession was caused by the economic boom of the late 1990s with minimal inflation rates and low unemployment. This is only a part of the accounting crisis; other contributing factors were the Enron scandal, banking panics, and stock market crashes.…

    • 559 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    Balance Sheet and Accounting
    • 8374 Words
    • 34 Pages

    Balance Sheet and Accounting

    McLean, B. and P. Elkind. 2003. The Smartest Guys in the Room. New York, NY: The Penguin Group. Moonitz, M. 1974. Accounting principles – How they are developed. In Institutional Issues in Public Accounting, edited by R. Sterling. Scholars Book Company. Morgan, E. V. and W. A. Thomas. 1962. The Stock Exchange. Peltzman, S. 1976. Towards a more general theory of regulation. Journal of Law and Economics (August): 211-240. Ramanna, K. 2005. The political economy of financial reporting standards: *Evidence from the business combinations project. Working paper, University of Rochester. Schipper, K. 2005. Fair values in financial reporting. Presentation at the American Accounting Association Annual Convention, San Francisco, CA. Securities and Exchange Commission (SEC), 1999. Revenue recognition in financial statements. Staff Accounting Bulletin (SAB) No. 101, SEC, Washington, DC. Vogt, R. V. 2001. SAB 101: Guidance on contract issues. Contract Magazine (June). Walker, R. G. 1992. The SEC’s ban on upward asset revaluations and the disclosure of current values. Abacus 28: 3-35. Watts, R.L. 1977. Corporate financial statements, a product of the market and political processes. Australian Journal of Management 2 (April): 53-75. Watts, R.L. 1993. A proposal for research on conservatism. Working paper, University of Rochester (presented at American Accounting Association Annual Meeting, San Francisco, CA). Watts, R.L. 2003. Conservatism in accounting Part I: explanations and implications, Accounting Horizons 17 (September): 207-221. Watts, R.L. and J. L. Zimmerman. 1978. Towards a positive theory of the determination of accounting standards. The Accounting Review 53 (January): 112-134. Watts, R.L. and J. L. Zimmerman. 1979. The demand for and supply of accounting theories: The market for excuses. The Accounting Review 54 (April): 273-305. Watts, R.L. and J. L. Zimmerman. 1983. Agency problems, auditing and the theory of the firm: Some evidence. Journal of Law and Economics 26 (October): 613-634. Weil, J. 2001. After Enron, “mark to market” accounting gets scrutiny. Wall Street Journal (December 4). Yamey, B. S. 1962. Some topics in the history of financial accounting in England 15001900. In Studies in Accounting Theory, edited by W. T. Baxter and S. Davidson. London, UK: Sweet and Maxwell. Zeff, S. A. 1972. Forging Accounting Principles in Five Countries: A History and Analysis of Trends 1971. Arthur Andersen Lecture Series. Champaign, IL: Stipes Publishing Company. Zeff, S. A. and B. G. Dharan. 1995. Readings and Notes on Financial Accounting, fourth edition. New York, NY: McGraw-Hill, Inc.…

    • 8374 Words
    • 34 Pages
    Powerful Essays
    Read More
  • Best Essays

    Examine the Advantages and Disadvantages for China of Harmonization of Accounting Standards Under the Current Economic and Social System
    • 1762 Words
    • 8 Pages

    Examine the Advantages and Disadvantages for China of Harmonization of Accounting Standards Under the Current Economic and Social System

    With the development of economic globalization and capital markets, accounting standards based on a national system cannot satisfy the needs of users whose decisions are increasingly international. Therefore harmonization of accounting standards has become an inevitable choice for many countries. The Chinese government has introduced four sets of accounting standards and efforts continue to be made to bring its domestic accounting standards in line with international accounting standards, as a result of which numerous benefits have been brought about by the harmonization of accounting standards for China. However, due to China’s unique economic and social system, certain problems have also arisen. This essay will evaluate the advantages and disadvantages of harmonization of accounting standards for China. Specifically, the essay will address the issues of: quality and credibility of accounting information, the participation in economic globalization, technological innovation, cost, chaotic management and damage to national interests.…

    • 1762 Words
    • 8 Pages
    Best Essays
    Read More
  • Powerful Essays

    Critical Review of Principles-Based Accounting Standards
    • 1324 Words
    • 6 Pages

    Critical Review of Principles-Based Accounting Standards

    Schipper (2003) who is a member of FASB conducted a study on the rules-based and principles-based accounting standards. The aim of this article is to discuss the attributes and potential effects of transferring from rules-based standards to principles-based standards. To some extent this article is critical, but several limitations need to be discussed, such as implementation guidance.…

    • 1324 Words
    • 6 Pages
    Powerful Essays
    Read More
  • Better Essays

    Role of Fasb
    • 1018 Words
    • 5 Pages

    Role of Fasb

    After the Stock Market Crash of 1929, many believers felt the crash was a result of inadequate and misleading financial statements which contributed to overstated stock prices, causing the crash and an the eventual depression. The Stock Market Cash proved the necessity for accounting standards. “Investors and creditors use financial information to make their resource allocation decisions. It’s critical that they be able to compare financial statements and related notes.” (Spiceland, Sepe, Tomassini pg 9). For these reasons the Financial Accounting Standards Board (FASB) was created to establish and improve standards of financial accounting and reporting. The FASB uses many different techniques to accomplish, establish and improve these standards.…

    • 1018 Words
    • 5 Pages
    Better Essays
    Read More
  • Best Essays

    Fair Value
    • 3808 Words
    • 16 Pages

    Fair Value

    With the modern transportation and communication technology development, in the industrial society, the segmentation of market is going to be narrow and towards the integration of world economy. The traditional historical cost based on the transaction price measurement is no longer the only reliable source of information. Fair value accounting due to the high relevance information will become increasingly important in the new century and the future accounting measurement. With the financial crisis, more and more professionals and bankers believed that the fair value accounting was the principal reason that the U.S. financial system melted down in 2008. By contrast, some investor groups and accounting interests emphasize that the fair value accounting gave investors an early warning of the looming financial crisis and continues to give them useful information.…

    • 3808 Words
    • 16 Pages
    Best Essays
    Read More
  • Good Essays

    Current Issues Financial Accounting
    • 1519 Words
    • 7 Pages

    Current Issues Financial Accounting

    The journal article named “The crisis of fair-value accounting: Making sense of the recent debate” is written by Christian Laux and Christian Leuz in Accounting and Organisations and Society journal (2009). Mr Laux works as a professor of finance at the Goethe University in Frankurt and his research has been published in many journals. Mr Leuz works as a professor of International Economics at University of Chicago Booth School of Business. He has done a lot of research and published his findings in several journals while acquiring many several grants and honours. Both authors have an immense amount of experience and qualifications in the area of accounting. The accounting topics that are covered in this article are financial instruments and recognition, relevance, reliability and measurement.…

    • 1519 Words
    • 7 Pages
    Good Essays
    Read More
  • Good Essays

    Zeff 1978
    • 5829 Words
    • 24 Pages

    Zeff 1978

    by Stephen A. Zeff Since the 1960s, the American accounting profession has been aware of the increasing influence of "outside forces" in the standardsetting process. Two parallel developments have marked this trend. First, individuals and groups that had rarely shown any interest in the setting of accounting standards began to intervene actively and powerfully in the process. Second, these parties began to invoke arguments other than those which have traditionally been employed in accounting discussions. The term "economic consequences" has been used to describe these novel kinds of arguments. By "economic consequences" is meant the impact of accounting reports on the decisionmaking behavior of business, government, unions, investors and creditors. It is argued that the resulting behavior of these individuals and groups could be detrimental to the interests of other affected parties. And, the argument goes, accounting standard setters must take into consideration these allegedly detrimental consequences when deciding on accounting questions.* The recent debates involving foreign currency translation and the accounting for unsuccessful exploration activity in the petroleum industry have relied heavily on economic consequences arguCopyright © 1978 by Stephen A. Zeff. *Ed. note: For the opinion of an accounting standard setter, see Oscar S. Gellein 's article in Statements in Quotes, p. 75.…

    • 5829 Words
    • 24 Pages
    Good Essays
    Read More
  • Good Essays

    English
    • 869 Words
    • 4 Pages

    English

    For the past two decades, fair value accounting—the practice of measuring assets and liabilities at estimates of their current value—has been on the ascent. This marks a major departure from the centuries-old tradition of keeping books at historical cost. It also has implications across the world of business, because the accounting basis—whether fair value or historical cost—affects investment choices and management decisions, with consequences for aggregate economic activity.…

    • 869 Words
    • 4 Pages
    Good Essays
    Read More