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Accounting Implication of a Global Financial Crisis

the reforms strategy of change in present financial reporting system concludes that while the crisis has revealed flaws in the World's own regulatory system, the concerning authoritative Board is still well positioned to play an active role in designing ne

The term 'Global
Financial Crisis' means economic scarcity where there exists a continuous
drawback against strategic stable economic growth in the world. The underlying
backgrounds with regard to the crisis had been reported in business journals
for many months before September 2008, with the emphasis about the financial
stringency of U.SA and world investment banks, insurance firms and mortgage
Securities Companies consequent to the subprime business crisis.

Introducing with some
evil critics against the business failures predominated by misapplication of
risk controls for bad debts, col-lateralization of debt insurance and fraud,
large financial institutions predominating in the United States and other
regions in the world had confronted a credit scarcity and sloth progression in
economic activity. The impacts speedily updated and emerged into a global shock
resulting in a number of European bank failures and declines in various stock
indexes, relevant with numerous reductions in the market value of equities and
commodities take place. The subprime mortgage crisis arrived a critical stage
during the first week of September 2008, featured by severely contracted
liquidity in the global credit markets and insolvency threats to investment
banks and other institutions. It is observed by a critical analysis that the position
in respect of the reserve from banks in the Federal Reserve System began
increasing over required levels of about $10 billion at the beginning of
September 2008, just after the Democratic and Republican national conventions,
and just before the stock market crash and presidential debates.

Consequent upon such
global financial crisis, there was great impact in accounting strategy and in
reference to world trade economy; there was scarcity of resource to measure the
strength of the existing pose of the financial institutions. For such adverse
connotation of Accounting, the International Accounting Standards Board and the
Financial Accounting Standards Board in the present day publicized
supplementary steps in response to the global financial crisis following their
joint board meeting held in London on 23 and 24 March 2009. These postulates
have helped to establish the original form of financial statements. In former
format of balanced sheet strategy, there was no scope to reflect some economic
events like inflation, interest rate and mortgage declining affairs but in the
present reform strategy, sufficient changes based on accounting implication
have been made with so many revolutionary altercations. In reference to global
financial crisis, the IASB was accepted in 2001 and is the standard-setting
establishment of the International Accounting Standards Committee Foundation,
and self-regulating private sector, not-for profit organization. The IASB is
steadfast to mounting, in the public interest, a single set of high quality,
global accounting standards that provide high quality crystal clear and
equivalent in order in general purpose financial statements. With regard to the
objective, the IASB demeanor wide-ranging public consultations and seeks the
co-operation of intercontinental and national bodies around the world. Its 14
members are drawn from nine countries and have a variety of 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 international business and market
experience. Since 1973, the US Financial Accounting Standards Board was elected
organization in the private sector for establishing standards of financial
accounting and reporting. Those standards administer the preparation of
financial reports and are authoritatively recognized as authoritative by the
Securities and Exchange Commission and the American Institute of Certified
Public Accountants. Such standards are indispensable to the resourceful
functioning of the cost-cutting measure for the reason that investors,
creditors, auditors and others rely on credible, transparent and comparable
economic information. Structuring on work underway, the two boards have agreed
to work jointly and expeditiously towards common standards that deal with off
balance sheet activity and the accounting for financial instrument. They will
also work towards analyzing loan loss accounting within the financial instruments
project. Furthermore, the boards have agreed to issue proposals to replace
their respective financial instruments standards with a common standard in a
matter of months, not years. As part of this project the boards will examine
loan loss accounting, including the incurred and expected loss models. The
boards will continue to draw on 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. 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 about standard-setting
implications of the global financial crisis and potential changes to the global
regulatory environment. It consists of 18 senior leaders with broad
international experience with financial markets, joined by official observers
representing key global banking, insurance, and securities regulators. The
chairmen and a few other board members from the IASB and the FASB also
participate in the discussions. The FCAG has considered as to how improvements
to financial reporting may help to enhance investor confidence in the financial
markets and is seeking to identify, and endow with input and advice on,
significant accounting issues that require the boards' immediate attention or
longer-term consideration. Topics being discussed include, among others, fair
value accounting, loan provisioning, and structured entities and other
off-balance sheet vehicles. The FCAG was also interested in exploratory the
oversight of the boards, the standard-setting process in exigent situations,
and the benefits of convergence of the two boards' standards. As part of its
work, the FCAG is considering various studies connected with the financial
crisis, such as the US Securities and Exchange Commission's study on
'mark-to-market' accounting, the UK Financial Services Authority's Turner
Review on the global banking crisis, and the Financial Stability Forum's work
on addressing 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 set up by the boards to
consider financial reporting issues arising from the global financial crisis.
The group includes recognized leaders from the fields of business and
government with a broad range of experience in international financial markets.

In view of the above
discussion it is evident that the criteria as set forth as per Accounting
standard that the focus should now be on ensuring that IFRS continues to be a
high quality principle based accounting language. The world trade authorities
need to engage with the standard setting process, as more and more countries
adopt IFRS. The steps relevant to financial crisis endorse an assurance to a
joint approach to the financial crisis and to the overall goal of seeking
convergence between International Financial Reporting Standards and US
generally accepted accounting principles (GAAP). There is no denying the fact
that in relation to global financial crisis, the IASB and FASB have significant
role to switch over the difficulties in regard to world economic crisis. They
have taken active steps to measure the risks and uncertainty of these areas.
The required discussion for those with IFRS experience to share their views and
knowledge. In areas such as accounting, being too prescriptive with global
measures could backfire. Issuing guidance those results in mechanical
rule-following could be a recipe for disaster. The underlying principles based
standard setting and professional judgment has a vital role to play and should
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 phase.

In view of the above it
is evident that in the majority cases, the concerning authorities should
subsequently be in a position to give their support to new standards, as they
are issued by the International Accounting Standards Board. However, the
reforms strategy of change in present financial reporting system concludes that
while the crisis has revealed flaws in the World's own regulatory system, the
concerning authoritative Board is still well positioned to play an active role
in designing new global structures and ensuring that they are transparent and
accountable and that developing countries as well as others are represented, in
order to increase the legitimacy of the decision-making process.
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