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Fair Value Accounting: A Global Perspective

   

Added on  2020-03-16

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Running head: FINANCIAL ACCOUNTING 2 ASSIGNMENT 1Financial accounting 2 assignmentNameInstitutional Affiliation
Fair Value Accounting: A Global Perspective_1
FINANCIAL ACCOUNTING 2 ASSIGNMENT 2Financial accounting 2 assignmentThis particular essay attempts to explain the issues surrounding contemporary accounting arguments like fair value accounting in various frameworks using ethical, social, regulatory, economic and global perspective (Arnold, 2012). The essay also demonstrates the understanding of accounting standard and the authoritative impacts that basically underpins reporting and accounting in the global and Australian Regulatory Environment. This assignment incorporates three parts; part A discusses the role of accounting standards in the GFC. Second part analyses the potential problems associated with poor accounting standards and last part discusses the influence of AISB on AASB in pursuing a global convergence of Australian Accounting Standards. IAS 39 defines Fair Value Accounting as the money that can be paid to basically transfer the obligation to a new debtor or the money that an asset can be traded in a prevailing transactionbetween enthusiastic parties and the knowledgeable (Chalmers, Godfrey, & Lynch, 2012). The great recession that started in the FY2008 has had a significant effect on the US and the global economy which was estimates that the total amount of Australian wealth lost is about AU$14 Trillion. The Global Financial Crisis impelled some players to criticize the role of fairvalue accounting that is needed by the accounting guidelines used by the key listed corporations in ASX and the world. The criticism of fair value accounting is basically considering various problems that includes pro-cyclicality and lack of liquidity that emphasized on the economic stages of recession and expansion. Basically, the fair value accounting standards could not afford and facilitated diverse financial institutions to report inflated profits that related to the home loans without recourse from analysts and auditors (Davies, & Green, 2013). The argument is that fair value accounting allowed diverse financial institutions to intensify their leverage on boom phase
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FINANCIAL ACCOUNTING 2 ASSIGNMENT 3that basically, in turn, made the financial systems more susceptible and global economic crisis more severe. Poor lending practices in Australian basically enhanced subprime mortgages crisis that idealized the crisis conditions. Diverse financial institutions in the country provided cheap loans to individuals and other companies through cheap loan rates (Albu, & Albu, 2011). Dueto inactivity in the markets, the major claims are that the fair value accounting basically contributed to undue leverage boom phases and thus led to excessive impossible to perform reliable market valuations for diverse companies. In this case, the valuation issue actually increased the aspect of depreciation for assets in the market. The problem with this particular increase in depreciation is that when the market for an asset that firm values it at fair value, it becomes illiquid. Additionally, during the GFC period, AASB and AISB issued additional guidance that regarded how to account for securities in illiquid, disrupted or distressed financial markets that did not properly evaluated the estimates that management used to valuethe company liabilities and assets. Low rates of interest basically inspired many in Australia to pursue homeownership plan which was an objective promulgated and even stimulated by the government as a prudent venture and worthy social goal (Geiger, Raghunandan, & Riccardi, 2013). Easy credit facilities basically provided by agencies in the country facilitated financial institutions to emphasize on the worthwhile subprime mortgage market. Lenders of the mortgage primarily instigated a rising number of new home mortgages many of which were approved to diverse individuals with poor credit ranking who were basically unable to service cyclic mortgage costs once the rate of interest increased. In this case, the gains created from the securitization of the home mortgages and other incomes on the loan servicing basically inflated the revenues motivating company managers
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