Effects of the Global Financial Crisis on the International Accounting Standards

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Since July 2007, leading economist believe that this has been the worst financial crisis since the great depression. This essay outlines various viewpoints and influences in respect to the paradigm. Firstly it defines, Global Financial Crisis (GFC) and the impact it has had on International Accounting Standards in regards to implementation and use of their accounting regulations. It also examines The Fair Value Measurement in accordance to the effect it has on the GFC and how the interpretation of fair value is the problem not the method itself. The Positive Accounting Theory (PAT) is also discussed and analysed in terms of it being the dominant theory to justify accounting regulations and standards (Anonymous. 2008a).


Due to the impact that the Global Financial Crisis (GFC) has had on the economy around the world, there has been doubt concerning the use and implementation of the International Accounting Standards. A number of people have blamed and criticised the International Accounting Standard Board (IASB) and their regulations. Retrospectively there are some that defend the IASB and believe it has no negative effect on the crisis. An area that has been deeply criticised is the Fair Value Measurement and blames it for the negative effects felt during the financial crisis. Particular individuals believe there is no alternative but to use the Fair Value Measurement. This view is opposed by others who believe it should be changed all together and then the view that there should be modifications made to the fair value regulations to help solve the problems. The Global Financial Crisis

The Global financial crisis (GFC) is described as an “economic scarcity where there exists a continuous drawback against strategic stable economic growth in the world” (Anonymous. 2009b). Smith (2009) depicts that the financial crisis was created by the real estate bubble burst in the U.S.A, in which caused banks to lower their lending standards and which their capital was depreciated fast, stating a big loss on mortgage loans. This ultimately led to uncertainty in the market because banks did not know who had what and who had the bad loans. Banks also constricted credits to customers which therefore customers stop buying and corporation stopped investing. Due to all these causes the stock market around the world deteriorated and many people lost their jobs.

Use and implementation of international accounting standards

The impact of the GFC on the use and implementation of international accounting standards has also been heavily criticised. The IASB has been forced to examine specific accounting standards and make appropriate alterations to regulations that require amendments. The aim of the IASB is to build confidence in investors and reduce the level of difficulty that is involved with accounting during the economic downturn. Many have blamed the use of Fair Value for the effects of the GFC and for the devaluation of the financial assets, which has caused large write offs of banks and financial service groups. Although after all this criticising of the Fair value measurement, there is no practical approach. Instead of modifying the entirety of the international accounting standards, there have been particular amendments made to demonstrate a more simple way of valuing an asset which will hopefully result in increasing investor’s confidence (McCafferty, 2008). It is evident that, accounting standards which adopt an active and liquid character work more efficiently. However in the circumstances of a GFC, the regulations and standards are inefficient and impractical in nature (Berman, 2008).

There has been immense pressure put on the IASB to alter and amend a number of the regulations that control the accounting procedure. Many parties are putting pressure on the IASB; however the main ones are the large banks and financial service businesses that have experienced huge losses during the recession....
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