Analysis of Financial Reporting Standards and Global Financial Crisis

This report delves into the intricate relationship between financial reporting, accounting standards, and the global financial crisis. Part A examines how accounting standards, particularly corporate financial reporting requirements, contributed to the crisis by influencing the valuation of assets and the illusion of economic growth. It highlights the responses of the IASB, including proposals to improve entity recognition, derecognition of liabilities and assets, impairment issues, and embedded derivatives. Part B discusses the challenges in motivating convergence of accounting standards and the IASB's efforts to enhance the quality of financial information, including the development of IFRS 13 for fair value accounting. Part C analyzes the responses of the AASB, emphasizing its adoption of IFRS and GAAP principles, its convergence policy with the IASB, and its application to both for-profit and not-for-profit entities. The report references key publications and academic research to support its analysis.

FINANCIAL REPORTING

Financial accounting
Part A
Accounting standards are surely involved in the creation of global financial crisis in various
ways. It is the presence of the accounting that guides the destiny of the economy. An economy
that has strong accounting standard and regulations are able to provide a strong stability and
hence, leads to proper course of conduct. The most obvious are the corporate financial reporting
requirements that governed the evaluation of off-balance sheet entities and assets. The reporting
system needs to be intact so that any deficiency can be negated. Hence, the corporate reporting
plays a leading role in assessing the assets. The significance of such accounting rules is
underlined by the ideology that the survival and solvency of many financial institutions rely on
how accountants assess bank assets and the extent to which auditors necessitate entities to
accommodate in the off-balance sheet entities and consolidation perimeter (Brown, 2011). This
generates dubiousness regarding the potential volatility of financial statements that may not
cause a fair amount. Hence, accounting standards resulted in amplifying the illusion of economic
growth and assisted in enhancing the value of assets’ spiral balances. These also play a role in
enhancing the vulnerability of entities in the procedure of attracting capital from various
financial institutions and facilitating enhanced cash outflows. As a response to the global
financial crisis, the IASB initiated several actions (Steven & Yachang, 2015). Firstly, it
published various proposals to improve and strengthen the requirements for recognizing which
entities a company has authority over. Furthermore, the board also endeavored to frame
proposals for covering derecognition of liabilities and assets. Secondly, the board has attempted
in the acceleration of efforts to cater to a wider range of impairment issues on an internationally
consistent basis. For such purpose, the board has asked its staff to consider collectively how
present requirements in relation to the reversal of impairment losses may be altered (Brown,
2011). Thirdly, the IASB has also ensured that the embedded derivatives are evaluated and
separated if the financial assets are reclassified. For such purpose only, the board amended the
IASB 39 (financial instruments to allow reclassification of specific financial assets).
On a whole, policy-makers like the IASB have sought to address the destruction done to the
financial stability and economies by implementing a huge set of financial reforms, both at
international and local level but their mission encounters from the same kind of issue that the aim
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Financial accounting
of framing a single set of accounting standard aimed to contribute. Both the objectives rely on
traditions and national attitudes. Hence, the role played by both the bodies is similar to each
other. Further, these rely on how well formal institutions assist and enforce adherence to
accounting standards to ensure the reliability of numbers. In all probability, the numbers can be
made reliable if the accounting standards can prove to be of high dominance. Weak accounting
standards leads to dilution of the efforts and the correct result cannot be attained. Overall, the
mission of achieving financial stability is challenging because change is not only required in
formal institutions but also in traditions, cultures, etc that involve transactions betwixt
collaborates.
Part B
In relation to the previous accounting standards, it can be noticed that distinct viewpoints of
corporate financial reporting made it complicated to motivate the convergence of accounting
standards. The information that is provided by the accounting standards does not fall in the
correct place and hence, a difference can be observed. The mission statement in the prior
accounting standards depicts that IASB shall frame a single set of enforceable and high-quality
standards that can produce enhanced quality, comparable, and transparent financial information.
However, when the IASB explained such high-quality accounting information and standards in
its publications it failed to offer a concise explanation of such concept. The reason behind this
can be attributed to the fact that its publications often provided an explanation of characteristics
and other concerns associated with the consequences of high-quality financial information.
Therefore, the emphasis even spreads on the effect caused by the financial information. Besides,
even academic researchers failed to ascertain whether the quality of financial information had
enhanced after the implementation of IFRS. In addition, they also encountered difficulties while
defining the ideology of accounting quality (Names & Nobes, 2010). Therefore, the ultimate
motive of the IASB is to enhance the quality of financial information on a worldwide basis. The
provision of IASB is to present the facts in a manner that will lead to better understanding and
enhance the overall concept. However, the same cannot be attained on its own because the board
can only offer significant building blocks for the same. Other building blocks consist of
institutional attributes reflecting the quality of investor protection and enforcement that can only
be provided by supervisors and national regulators (Chapman, 2009). Hence, there are various
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Financial accounting
building blocks present and that needs to be taken into consideration. However, the recent
changes in the accounting standards by the IASB have assisted in solving some of these potential
issues.
IFRS 13 was the outcome of a convergence betwixt the FASB and the IASB. However, sooner
both the boards started framing their fair value measurement standards separately. Nevertheless,
based on the perspective of IASB, the reasons behind the actions to improve fair value
accounting can be attributed to four main reasons (Sunder. Firstly, IASB intended to frame a
single set of requirements for measurement of fair value so that complexity can be reduced and
consistency in the application of such accounting can be enhanced. This can further result in
maximizing the comparability of information in the company’s financial statements. When the
financial information is compared it leads to better course of conduct and helps in deriving at the
required result. Secondly, IASB aimed to clarify the definition of such fair value accounting and
other associated guidance so that the measurement objective could be communicated efficiently.
It is important for the IASB to provide correct as well as meaningful information that will help in
providing the best information. Thirdly, to enhance the convergence of US GAAP and the IFRS
standards and lastly, to maximize disclosure about such accounting so that users can evaluate
valuation methods used to establish fair value measurements (Walker, 2011). Fair value
measurements helps in maximizing the disclosure that helps the parties in getting the correct or
the desired information.
Part C
The AASB (Australian Accounting Standards Board) had responded to the global financial crisis
by taking into account more efficient and strict principles of accounting that includes the IFRS
standards and GAAP principles. Moreover, it can also be noted that accounting issues have been
reviewed by the IASB so that clarifications regarding IFRS can be made in response to the
present market conditions. The actual cause of review and the response indicates that the
clarification has been provided in this regard. This is the reason why the AASB has also
contributed to the efforts made by IASB. In other words, the board believes that Australian
constituents must possess the same treatments as are present within the IASB. Nevertheless, this
can assist the board to address any issues that are associated with the accounting standards
highlighted by the global financial crisis. Hence, the organization is about to get a clear picture
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Financial accounting
of the entire environment. This not only proves to be of great help to the end users but also assist
the board in taking correct decisions for the appropriate time
In July 2001, the AASB framed an Exposure Draft (ED 102) ‘International Convergence and
Harmonization Policy’ in order to merge with the policies framed by the IASB. International
harmonization and convergence mean a policy of operating with other bodies to revise or
develop accounting standards that can contribute to the development of a single accounting
standard for global use (Maria, 2011). The main objective of AASB’s convergence policy is to
coordinate and pursue the objectives of IASB. The entire course of action is done in tune to the
benefit of the company. Nevertheless, unlike the IASB standards wherein the accounting
standards are applicable only to profit-making entities (including government entities), the
standards of AASB are not so influenced by the same hence, IASB stands in a very low position
and needs to connect with the their parts . This is because the AASB standards are applicable to
not only entities complying under the Corporations Act 2001 but also to not-for-profit and public
sector entities (Pope & McLeay, 2011). The region under the concept indicates that the concept
if available for all the companies and hence, needs to provide all the accurate information that
Overall, the AASB standards are more or less equivalent to the standards framed by the IASB
and with the due passage of time; the IASB will make and continue to frame variations to these
standards that include issuance of new ones (Walker, 2010). On the other hand, the AASB is
influenced by the IASB standard, as it is committed to ensuring that AASB equivalent to the
same will be readily issued by them.
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Financial accounting
References
Brown, T. (2011). International Financial Reporting Standards: What are the benefits.
Accounting & Business Research, 41(3), 76-83
Chapman, C.S, Cooper, D. & Miller, P (2009). Accounting, organizations, and institutions.
Oxford: Oxford University Press.
Maria, W 2016, The “Big” Consequences of IFRS: How and When Does the Adoption of IFRS
Benefit Global Accounting Firms?. The Accounting Review 91(4), 1257-1283
Nobes, C. Parker, R (2010). Comparative International Accounting. FT Prentice Hall.
Pope, P.F. McLeay, S.J. (2011). The European IFRS Experiment: Objectives, Research
Challenges and Some Early Evidence. Accounting and Business Research, 41(3), 31-43
Sunder, S. (2011). IFRS Monoply: Pried Piper of Financial Reporting’, Accounting and Business
Research, 41(3), pp. 22-41
Steven, Y & Yachang, Z. (2015). Accounting Comparability and the Accuracy of Peer-Based
Valuation Models. The Accounting Review 90(6), 2571-2601.
Walker, M. (2010). Accounting for varieties of capitalism: the case against a single set of
standards, The British Accounting Review, 42(3), 137-152
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