Accounting and Financial Crisis



Accounting and Financial Crisis

The Role of Accounting in Financial Crisis

Fair value accounting for financial instruments is part of a broader trend in accounting standards away from the "Accounting" to the estimate of expected future cash flows and the inclusion in the financial statements, i.e. "forecounting". (Schroeder, Clark, Cathey 2005) trend undermines decades if not centuries of accounting practices and concepts such as conservatism and verifiability, and requires quite a set of assessment skills and knowledge of accountants.

The current crisis is the first serious challenge to this trend, and a fair book value, in particular, and can generate abundant empirical research over the next few years, allowing us to better evaluate the pros and cons of fair value accounting. Despite the almost universal adoption of accounting standard setters, on the merits of fair book value to continue to generate intense and passionate debate among scholars, businessmen, investors and regulators. Surprisingly element underlying these discussions is the apparent irreconcilable positions of the participants in favor of or against fair value accounting. Nevertheless, the current financial crisis has significantly raised the level and rate of this debate, with the fair book value are increasingly under attack. For example, the U.S. Congress recently mandated by the Securities and Exchange Commission to investigate and report on the contribution of fair book value of the financial crisis (Jeffrey 2008).

In response, several standardization bodies such as the Canadian Accounting Standards Board, Financial Accounting Standard Board and International Accounting Standards Board has recently imposed a temporary waiver of the provisions of certain aspects of the accounting fair value of financial institutions. Nevertheless, in the discussions should not be overlooked that the various financial and economic interests in the game - the additional powers to law-making bodies, more business for suppliers of accounting and valuation services, increasing the uncertainty of their bonuses to managers and supervisors, etc.. Therefore, the viewpoints and arguments of the parties concerned should be reformulated accordingly.

The discussion goes beyond accounting and financial reporting and transactions with the essence of what accountants are expected to contribute to society and, indirectly, what competencies and skills should they have to deliver in this regard. It can be assumed that current accounting standards, such as those relating to fair value is likely to surge capacity of accountants and prior training, and other vague information needs of investors and other interested parties.

The ...