Accounting implications of a global financial crisis


The term “global financial crisis” means economic scarcity where there is a continuing downside against stable strategic economic growth in the world. The underlying antecedents of the crisis had been reported in trade journals for many months prior to September 2008, with emphasis on the financial stringency of the United States and global investment banks, insurance companies and mortgage securities companies following the subprime mortgage crisis. . Presenting with some bad reviews against corporate bankruptcies predominated by poor application of risk controls for bad debts, debt insurance collateral and fraud, large financial institutions predominate in the United States and in d he other parts of the world have faced a credit crunch and sluggish growth in economic activity. The impacts quickly updated and turned into a global shock resulting in a number of European bank failures and declines in various stock market indices, leading to numerous reductions in the market value of equities and commodities. The subprime mortgage crisis came to a head in the first week of September 2008, characterized by severely contracted liquidity in global credit markets and threats of insolvency for investment banks and other institutions. It is observed by critical analysis that the reserve position of banks in the Federal Reserve System began to rise above the required levels of approximately $10 billion in early September 2008, just after the Democratic and Republican national conventions, and just before the stock market crash and presidential debates.

Following such a global financial crisis, there has been a great impact on accounting strategy and with reference to the global trading economy; there was a shortage of resources to measure the strength of the current position of financial institutions. For such a negative accounting connotation, the International Accounting Standards Board and the Financial Accounting Standards Board today announced further action in response to the global financial crisis following their joint board meeting held in London on 23 and March 24, 2009. These assumptions helped establish the original form of the financial statements. In the old balance sheet strategy format, there was no opportunity to reflect certain economic events such as inflation, interest rates and falling mortgages, but in the current reform strategy, enough changes based on the accounting implication were made with so many revolutionary altercations. With reference to the global financial crisis, the IASB was accepted in 2001 and is the standard setter of the International Accounting Standards Committee Foundation, and the self-regulatory private sector, not-for-profit organization. The IASB is committed to establishing, in the public interest, a single set of high quality global accounting standards that provide clear and equivalent general purpose financial statements of high quality. With respect to the objective, the IASB conducts extensive public consultation and seeks cooperation from intercontinental and national bodies around the world. Its 14 members come from nine countries and have varied professional backgrounds. They are appointed by and accountable to the Trustees of the IASC Foundation, who are required to select the best available combination of technical expertise and diversity of business and international business experience. Since 1973, the United States Financial Accounting Standards Board has been elected as the private sector organization to set standards for financial accounting and reporting. These standards govern the preparation of financial reports and are recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential for the proper functioning of the cost reduction measure because investors, creditors, auditors and others rely on credible, transparent and comparable economic information. Structuring the ongoing work, the two boards agreed to work jointly and quickly towards common standards that address off-balance sheet activity and accounting for financial instruments. They will also work on the analysis of loan loss accounting under the financial instruments project. In addition, the boards have agreed to publish proposals to replace their respective financial instruments standards with a common standard within months, not years. As part of this project, boards will review loan loss accounting, including incurred and expected 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 membership of the FCAG includes current and former investors, regulators, central bankers, finance ministers and other industry and public sector players.

The FCAG was established by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) of the United States to advise the two boards on the normative implications of the global financial crisis and potential changes in the environment global regulatory. It is made up of 18 senior executives with extensive international financial markets experience, joined by official observers representing the world’s leading banking, insurance and securities regulators. The chairs and a few other board members of the IASB and FASB also participate in the discussions. The FCAG has considered how improvements in financial reporting can help build investor confidence in financial markets and seeks to identify and provide commentary and advice on significant accounting issues that require immediate attention. longer term advice or consideration. . Topics covered include fair value accounting, loan provisioning, and structured entities and other off-balance sheet vehicles, among others. FCAG was also interested in exploring board oversight, the standardization process in emergency situations, and the benefits of converging standards from both boards. As part of its work, the FCAG is considering various studies related to the financial crisis, such as the United States Securities and Exchange Commission’s study of mark-to-market accounting, the Turner review of the UK Financial Services Authority on the global banking crisis, and the work of the Financial Stability Forum on tackling procyclicality in the financial system. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) announced this week the composition of the Financial Crisis Advisory Group (FCAG). The FCAG is the high-level advisory group established by boards of directors to review financial reporting issues arising from the global financial crisis. The group includes recognized leaders in business and government with extensive experience in international financial markets.

In view of the above discussion, it is evident that the criteria defined by the accounting standard should now aim to ensure that IFRS continues to be a high quality principles-based accounting language. Global trade authorities need to engage in the standard-setting process as more countries adopt IFRS. The steps relevant to the financial crisis endorse an assurance of a common approach to the financial crisis and the overall objective of seeking convergence between International Financial Reporting Standards and generally accepted accounting principles (GAAP) of the United States. United. It is undeniable that with regard to the global financial crisis, the IASB and the FASB have an important role to play in overcoming the difficulties associated with the global economic crisis. They have taken active steps to measure the risks and uncertainty of these areas. The necessary discussion for those with experience of IFRS to share their views and knowledge. In areas like accounting, being too prescriptive with aggregate metrics could backfire. Giving advice on these results in mechanical adherence to the rules 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 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 is obvious that in the majority of cases, the authorities concerned should be able to support the new standards, as issued by the International Accounting Standards Board. However, the current financial reporting system change reform strategy concludes that while the crisis has revealed flaws in the global regulatory system, the authoritative board is still well placed 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 decision-making.

Source by Kh. Atiar Rahman

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