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Financial Accounting for Business Combinations Assignment

   

Added on  2021-06-15

7 Pages1944 Words21 Views
Financial Accounting for Business Combinations

AbstractThe present essay is developed to examine the contribution of fair value accountingtowards the occurrence of global financial crisis. This has been carried out by discussing thedrawbacks of fair value accounting that lead to misrepresentation of financial formation to theend-users. The use of large estimates in determining the fair value of assets and liabilities islargely responsible for the occurrence of financial crisis as identified from the essay due tocurrent IFRS standard requirements.

IntroductionThe international accounting standards prepared by the IASB provide standardaccounting rules and guidelines to the professional accountants worldwide for developing andpresenting their financial statements. The standards are developed to ensure that end-usersreceive reliable and faithful information that facilitates them in their decision-making process.However, at present there is increased debate relating to the contribution of IFRS towards theoccurrence of financial crisis. For example, the occurrence of global financial crisis in the year2009 was largely accounted due to the use of fair value accounting standards provided by IFRS(Laux and Leuz, 2010). In this context, the present essay is developed for discussing the issues inthe method of fair value accounting that can lead to the occurrence of global financial crisis. Inthis regard, it provides a discussion of the financial crisis and the current IFRS requirements thatcan contribute towards the financial crisis. Financial Crises meaning and its impactFinancial crises refer to the period or situation of economic downturn faced by the marketand consumers. It is very difficult to succeed in the situation of the global financial crises aspotential consumers tend to reduce their purchase of goods and services due to poor economicconditions. The global economy was largely impacted by the financial crisis of the year 2008-2010 that led to the downfall of the develop markets. The overall financial distress in the marketsituation has led to the downfall of the global economic market. In the situation like financialcrises the value of assets or financial institutions drops at very rapid speed as there are no buyersand investors when financial crises occur. The financial crises led to the panic situation whereinvestors sell off the assets and withdraw money from the saving accounts as they believe thatvalue of assets will drop quickly and there are chances that banking system can breakdown(Zimmerman and Yahya-Zadeh, 2011). The financial crisis has resulted in the collapse of large financial institutions due tofraudulent business practices such as mis-representation of financial information. The collapse ofthe mortgage market is responsible for bankruptcy large financial institutions in the USA duringthe period 2008-2009. This in turn also led to the breakdown of financial system in other partsof the world and it became first global financial crises that have resulted in the slower economic

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