As an introduction, first we will a brief explanation of accounting measurement will be discussed. Then we will have few views of measurement principles in accounting. After those outlooks we will then come to the main point of causes and cures of global financial crisis. The lastly it will lead us to the study of the Current Financial Crisis from an Accounting Point of View.
1.1 Measurement principles in accounting
Accounting measurement can be defined in different ways. Therefore from my understanding accounting measurement is ways of accounting principles or values in terms of capital or other entities. In anything we do we have principles in doing that particular action. So, we also have principles of measurement in accounting. For instant there are several system tools in preparing financial statement, example asset. Thus, enabling users in interpreting statements without doubts, business within the same industries are suppose to use similar measurement principles or ideas.
2.1 Causes and cures of global financial crisis
Now Global financial crisis has become a very serious dilemma in our business lives. It started showing its effect in 2007 - 2008. It led to the decrease of stock market in business which also affected the companies in getting loss. As it is said, 'On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out." http://www.globalissues.org/article/768/global-financial-crisis.C:\Users\SONY\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.IE5\K8DR0GJS\MC900441882.wmf
We have to ask ourselves why do we sufferer financial crisis? And what would be the ways to prevent this disaster? This could be the miswriting the balance sheet valuations where assets are being overstated, liabilities are being understated. And also the some of the information's are concealed. Failure of organizing systematic system may lead to. The policy that promoted marketing over the last 20 years stability were removed and allowed the new financial tool to extend without any mistakes. New financial tools were effective in forcing the amount of leverage. And also covers the size of the size of the risk in the structure. The sign of this failure is that leaders claim that they were not aware of the risk their firms were exposed, they had no idea that this amount placed huge gamble in financial casino.
It is very useful not to waste too much time, and instead to untie those plans that were made and to separate those which have worked from the one which have not work. Apart from all the causes that can lead to financial crisis, we also have to consider bailout. This cost is very huge that it can even grow larger. Regardless of the wonderful cost, this program of random bailouts of financial firms has not been so valuable, although it has prevented instant crisis and also helped some of the firms from falling down.
Moreover, we have seen the causes that can lead to crisis, Now let us see how we can prevent this dilemma we are facing. If the measurement that has been taken is correct, then it is clear that the solution this misery could be decided on two major objectives. The first purpose is that all sensible dimensions must be peaceful and reinstate demand. Here financial motivation must be strongly applied to do this. In order to maintain all the employers (e.g. schoolteachers, librarians, fire fighters etc) in their work, federal government should send funds to state and local governments. This should boost the range of equipped forces. They should lend money to the producer and other industrial firm that utilize large number of workers. Jobless assurance should even be extended more. Anything that may keep unemployment losing should be measured.
Second objective is that, is to force accurately the uprising of the balance sheet, and to oblige the strong capital need of financial organization. Although this will lead to failure of many large firms but it is what is needed to be done. So, the federal governments should stop bailing out monetary firms. Furthermore, "The liquidation and guaranty fund approach provides a way out of the crisis. The government should seize weak financial companies and liquidate them." http://www.soa.org/library/essays/rm-essay-2008-robbin.pdf.
The government should make sure that all the financial companies that are far way down concerning capital should be paid a debt or shut down. Or even paying them some of percentage or setting them a good rate. Instead of examining in AIG, or providing them money, the government should consider paying standard insurance contracts.
3.0 Current financial crisis from an accounting point of view
Finally, we will discuss the current financial crisis from an Accounting point of view consist of different views which are accountant influence for financial crisis, discovery of accounting information, crisis on the impact of accounting.
3.1 Accountant influence for this financial crisis
3.1. Accountant principle
3.1.1 Finance belongings measurement:
It mainly refers to project the financial property or liability which sells to the close future. For instant, concerning China, their accountant principle is divided into four different kinds of tools: which are to include by fair and immediately value measurement, then it invests the loan fund, third step is that after giving loan and the receivable fun the due date, and lastly they supply the sell financial belongings.
3.1.2 Correlation finances grow the measurement question
For example in certain situations, on market price if we compare it with inner estimated, the cash ability communication worth that was determined that the public marked finance tool is not fair. The enterprise is determined when value is fair and just value may have two kinds of choices. These choices is either to immediately settles accounts the value as basis or take the expected settlement value as the basis.
3.2 Disclosure of accounting information
3.2.1. Lack of transparency and mobility in structure of products.
As it is stated, "International Organization of Securities Commissions (IOSCO) has issued securities of Exchange Traded species information disclosure standards, the implementation of the various countries and regions, not differences."
3.2.2 Risk management and lack of prudential supervision
IOSCO the technical commission have hired the work team to investigate large scale international savings, bank flexibility and the credit risk services situation. From the investigation they found that in sub-loan market, the only business intermediaries are the securities industry, investment in obtaining financing and administration commission do pay little attention to risk management, but not only positive but also few loan products in the off-market transaction. Low frequency market transaction and facing difficulty in timing management of market risk. For example, several organization had no choice than "outsourcing" their interior risk management, this depends on recognition rating which measure the risk of sub-loan product that results in sub-loan crisis. Consequently, main bulk of financial information must reveal all the ones related to any type of risks.
3.3 Accountant measures the quality.
Makers have promoted the fair value accounting, which is known as the basis of accounting measurement. It can reflects the actuality of the finance and also make better accounting report. With fair value, financial institutions reflect the profit and loss account on a lot of profit. This is much easier for managers and dealers in production of sightless confidence. Apart from that it also increases the shareholders' dividends which are not very helpful in the financial institution in improving to oppose the risk. Fair value is more and more being included into the original and amended accounting standards.
4.0 Crisis on the crash of accounting
The International Accounting Standard Board (IASB) is a schedule that discuses the fair value accounting standards. IASB said in a statement: "the provisions of the revised, in accordance with International Financial Reporting Standards (IFRS) accounts of the enterprise board, the new criteria will be reclassified based assets."
IASB later issued explanations that were complicated in agreement with the market price accounting standards. On September 30th ASB had issued a combined statement that outlines how to establish the best use of the inactive transaction on asset pricing.
5.0 In conclusions
To briefly summarize these points regarding the question that says, "The impacts of accounting measurement on the current global financial crisis." In the causes and cures of crisis, instead of paying out the weak firms, we should be liquidating them. All the information's that we have doubt on them should be clearly note down as soon as possible. Accounting should be transparent and accurate. In this effort government could be involved in helping us maintaining up our accounting system. It should stop being a saver but needs to control all financial instruments. Liquidity and demand should be promoted. This is what should be done to prevent from getting crisis. Regarding financial crisis from accounting point of view, we should consider the accounting principles, information's and qualities.