The term ‘Global Financial Crisis’ means economic scarcity where there exists a continuous drawback against strategic stable economic growth in the world. The underlying backgrounds with regard to the crisis had been reported in business journals for many months before September 2008, with the emphasis about the financial stringency of U.SA and world investment banks, insurance firms and mortgage Securities Companies consequent to the sub prime business crisis. Introducing with some evil critics against the business failures predominated by misapplication of risk controls for bad debts, col-lateralization of debt insurance and fraud, large financial institutions predominating in the United States and other regions in the world had confronted a credit scarcity and sloth progression in economic activity. The impacts speedily updated and emerged into a global shock resulting in a number of European bank failures and declines in various stock indexes, relevant with numerous reductions in the market value of equities and commodities take place. The sub prime mortgage crisis arrived a critical stage during the first week of September 2008, featured by severely contracted liquidity in the global credit markets and insolvency threats to investment banks and other institutions. It is observed by a critical analysis that the position in respect of the reserve from banks in the Federal Reserve System began increasing over required levels of about $10 billion at the beginning of September 2008, just after the Democratic and Republican national conventions, and just before the stock market crash and presidential debates.
Consequent upon such global financial crisis, there was great impact in accounting strategy and in reference to world trade economy; there was scarcity of resource to measure the strength of the existing pose of the financial institutions. For such adverse connotation of Accounting, the International Accounting Standards Board and the Financial Accounting Standards Board in the present day publicized supplementary steps in response to the global financial crisis following their joint board meeting held in London on 23 and 24 March 2009. These postulates have helped to establish the original form of financial statements. In former format of balanced sheet strategy, there was no scope to reflect some economic events like inflation, interest rate and mortgage declining affairs but in the present reform strategy, sufficient changes based on accounting implication have been made with so many revolutionary altercations. In reference to global financial crisis, the IASB was accepted in 2001 and is the standard-setting establishment of the International Accounting Standards Committee Foundation, and self-regulating private sector, not-for profit organization. The IASB is steadfast to mounting, in the public interest, a single set of high quality, global accounting standards that provide high quality crystal clear and equivalent in order in general purpose financial statements. With regard to the objective, the IASB demeanor wide-ranging public consultations and seeks the co-operation of intercontinental and national bodies around the world. Its 14 members are drawn from nine countries and have a variety of professional backgrounds. They are appointed by and accountable to the Trustees of the IASC Foundation, who are required to select the best available combination of technical expertise and diversity of international business and market experience. Since 1973, the US Financial Accounting Standards Board was elected organization in the private sector for establishing standards of financial accounting and reporting. Those standards administer the preparation of financial reports and are authoritatively recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are indispensable to the resourceful functioning of the cost-cutting measure for the reason that investors, creditors, auditors and others rely on credible, transparent and comparable economic information. Structuring on work underway, the two boards have agreed to work jointly and expeditiously towards common standards that deal with off balance sheet activity and the accounting for financial instrument. They will also work towards analyzing loan loss accounting within the financial instruments project. Furthermore, the boards have agreed to issue proposals to replace their respective financial instruments standards with a common standard in a matter of months, not years. As part of this project the boards will examine loan loss accounting, including the incurred and expected loss models. The boards will continue to draw on expertise provided by the Financial Crisis Advisory Group (FCAG), a high level advisory body formed to guide the boards in their joint response to the financial crisis. Composition of the FCAG includes current and former investors, regulators, central bankers, finance ministers and others from industry and the public sector.
The FCAG was established by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to advise the two boards about standard-setting implications of the global financial crisis and potential changes to the global regulatory environment. It consists of 18 senior leaders with broad international experience with financial markets, joined by official observers representing key global banking, insurance, and securities regulators. The chairmen and a few other board members from the IASB and the FASB also participate in the discussions. The FCAG has considered as to how improvements to financial reporting may help to enhance investor confidence in the financial markets and is seeking to identify, and endow with input and advice on, significant accounting issues that require the boards’ immediate attention or longer-term consideration. Topics being discussed include, among others, fair value accounting, loan provisioning, and structured entities and other off-balance sheet vehicles. The FCAG was also interested in exploratory the oversight of the boards, the standard-setting process in exigent situations, and the benefits of convergence of the two boards’ standards. As part of its work, the FCAG is considering various studies connected with the financial crisis, such as the US Securities and Exchange Commission’s study on ‘mark-to-market’ accounting, the UK Financial Services Authority’s Turner Review on the global banking crisis, and the Financial Stability Forum’s work on addressing procyclicality in the financial system. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) this week announced the membership of the Financial Crisis Advisory Group (FCAG). The FCAG is the high-level advisory group set up by the boards to consider financial reporting issues arising from the global financial crisis. The group includes recognized leaders from the fields of business and government with a broad range of experience in international financial markets.
In view of the above discussion it is evident that the criteria as set forth as per Accounting standard that the focus should now be on ensuring that IFRS continues to be a high quality principle based accounting language. The world trade authorities need to engage with the standard setting process, as more and more countries adopt IFRS. The steps relevant to financial crisis endorse an assurance to a joint approach to the financial crisis and to the overall goal of seeking convergence between International Financial Reporting Standards and US generally accepted accounting principles (GAAP). There is no denying the fact that in relation to global financial crisis, the IASB and FASB have significant role to switch over the difficulties in regard to world economic crisis. They have taken active steps to measure the risks and uncertainty of these areas. The required discussion for those with IFRS experience to share their views and knowledge. In areas such as accounting, being too prescriptive with global measures could backfire. Issuing guidance those results in mechanical rule-following could be a recipe for disaster. The underlying principles based standard setting and professional judgment has a vital role to play and should not stifle recovery. If this can be achieved through the consultative process, it should be possible for public and private sector parties to contribute to the evolution of individual standards, from the initial standard setting phase.
In view of the above it is evident that in the majority cases, the concerning authorities should subsequently be in a position to give their support to new standards, as they are issued by the International Accounting Standards Board. However, the reforms strategy of change in present financial reporting system concludes that while the crisis has revealed flaws in the World’s own regulatory system, the concerning authoritative Board is still well positioned to play an active role in designing new global structures and ensuring that they are transparent and accountable and that developing countries as well as others are represented, in order to increase the legitimacy of the decision-making process.