Effects of the Global Financial Crisis on the International Accounting Standards

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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).
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These areas have been underlined, as well as the accounting regulations, due to the economic difficulty that has been experienced and for the IASB to take a course of action to try re-gaining the trust of investors and large organisations. The amendments made by the IASB consist of: impairments, connecting gaps involving different accounting standards which apply to similar circumstances, financial instruments, changes in the area of consolidation, derecognizing, and improving the accounting for the off balance sheet items (IASB, 2009). ). The issue of bridging the gap between accounting standards has gone through some transition. Initially accounting regulations were able to use various techniques, in which increased the difficulty of compatibility. This was highlighted by the European Unions request for changes in re-classifying financial assets, analogous to the stance taken in the US, namely the Generally Accepted Accounting Policies (IAS)

Fair Value Measurement

According to IAS 39 (2009), fair value is:

‘The amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm length transaction.’

In fact if there is an effective market, then the fair value would be equal to the current market price. However this is subject to the requirement that it must reflect the wishes of the parties. The reason why fair value measurement is partly liable for the GFC is because when using
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