The World Needs International Accounting Standards Essay -- Accounting

Financial reporting has a responsibility to communicate the economic condition and functioning of an enterprise. This has to be accurate, reliable and comply by the accounting standards. Effective fiscal reporting is essential in maintaining confidence in an economy and encouraging investors to invest.Towards the end of 2008, the financial sector across the world was becoming increasingly unstable. Lehman Brothers had been decl ared bankrupt, Various allegations towards accounting standards have been made in relation to the financial crisis.A crowd of banks worldwide valued most of their financial assets at historiccost, the cost at which the assets were initially bought at. These figureswere not adjusted to the current market values, and therefore were oerestimated on the financial accounts. The incurred loss model, was similarly heavily criticised. This model required only those lossesto be recorded which would have a damaging firmness on future cash flows. The damagingresult would have to be reliably estimated. This model did not permit the effects of futurelosses to be acknowledged, which was one of the reasons why losses were being severelyunderstated.Had these banks valued their financial assets at fair-value cost, then theaccounts of the companies would have been giving a more realistic range of profits & losses, and maybe the crisis would have beenRecognised earlier in time.Off-balance sheet standards have also been blamed for covering companylosses. Off-balance sheet asset/liabilities are those which are exemptfrom appearing on the balance sheet. It has been put forward by theFinancial Crisis Advisory Group that the off-balance sheet standards mayhave enigmatical losses, therefore... ... risk factors.In response to the financial crisis, the Boards have been advised to emphasise to businessentities how crucial it is that the quality of the data recorded for financial reporting should beto a high standard. A global convergence of accounting standa rds is more imperative than ever, as financialmarkets are now global markets. A invariant set of accounting standards around the world would enhance transparency, encourage efficient allocation of resources and would allow risks to be recognised.At the moment, over 100 countries have follow to the IFRS (International FinancialReporting Standards). The Boards have advised that economies that have not adopted theIFRS, should set a practical timetable for adopting these standards. It is not only vital to converge, but also to maintain common solutions and interpretations between economies.