Accounting Implication in Global Crisis Article 1 - Helping your clients and your Accounting firm survive recession. The article describes how an accounting firm can survive and succeed during recession times. Author explains that during the recession phase corporate and business owners need more accounting assistance than normal times. With the right planning and effort the accounting professionals can cater to the demands of business owners very effectively during financial crisis. Insight & Recommendation: Accounting principles are essential to an organization at all point of time. It has more value during crisis as business owners need more strategies which control their income and expense at times of economic downturn.
Accounting professionals can guide them with accounting services, tax management and financial advices. Article 2 – ICAEW: global accounting rules needed for financial crisis. The ICAEW institute urges US Securities and Exchange Commission to comply with the International Financial reporting Standards in order to secure the economic state of US companies in recession phase. ICAEW recommends that such an action by US companies will not only benefit them but also the entire globe by improving the transparency and comparability. These comments come as a response to the opposition from US with regard to global accounting standards. IFRS can be successful in US only if the people dealing with company accounts are educated in the right way. Insight & Recommendation: It is highly essential for the American companies to utilize well the accounting principles and strategies in order to improve their financial status during the times of economic downturn.
Recommendation and suggestion from accounting experts and institutes should be valued to avoid financial instability. Article 3 - Fair-value accounting: implications for liquidity risk management.
Fair-value accounting has great impact on liquidity risk management of banking sector on both individual and collective basis. The article suggests that fair value accounting allows in the improvement of credit allocation and thus bring about net positive result in banking activities. The author emphasize that sudden paralysis in lending practice of banks were due to the great uncertainty in the individual bank’s asset stability and accounting losses. Success of banking sector depends on the goodwill that it has in the market and in order to maintain it accounting plays a big role. Insight & Recommendation: As per the suggestion of analyst banking sector should imply fair value accounting in their activities.
This will give consistency to their market value and also provide them with more stable pricing policy. It is a usual practice of organizations to undervalue the real potential of accounting system in their day to day activities. Article 4 - Accounting Regulators Not Necessarily in Harmony. The U. S banking and insurance sector is taking lightly the various accounting standards set by U. S.
and global standard setters. The standards set by FASB and IASB are found tough to be followed by the insurance and banking industry and they object to comply with it. Banks in order to find a relief from accounting standards requested the Treasury Secretary to utilize the G-20 meeting to relax the fair value accounting standards set on loans and debt securities. The accounting industry in U. S should get hard with accounting standards in order to maintain a fair transparency standard reflecting the company assets Insight & Recommendation: It can be very well seen that the companies reject the standards of accounting experts when it comes to transparency and accounting principles.
If the business operation is carried out with less transparency, in recession times business activates can get destabilized due to an impoverished balance sheet and asset values. Article 5 - Recession Accounting. The Financial reporting standards are being overlooked by the companies and are only implied in terms of turnover and growth. Balance sheets, loan covenants and working capital ratios are largely ignored. With the appearance of recession, companies started valuing the opinions of accountant s in order to save their goodwill. The crucial thing is the balance sheet, and real scrutiny of it can bring much change in the financial status of the companies.
FRS needs to support companies in downturn and sudden upturn to maintain balance. Insight & Recommendation: Accountants should give much attention to the financial statements so that the companies are faced with fewer traumas during the phase of global crisis. A company with a clear view of its assets and liabilities can take more potential decision in times financial crisis. Article 6 – How to stay ahead in accounting and finance during a recession. From global point of view there is huge demand for accountant with international business knowledge and expertise in reporting.
Many business rules are implemented in recent years as a result of global financial crisis. Accountants in order to stay competent should remain vigilant and update with new trends and should attempt to support companies in the best way. Accountants in order to stay ahead of time should make use of latest technologies available in the market.
Strong communication with proactive skills and expertise in accounting field enhance the opportunity of the accountants in the phase of recession. Insight & Recommendation: Companies needs accountants more than ever during global financial crisis. They need very competent professionals who can deliver them with proper financial strategies and policies. Accounting professionals in order to increase their marketability should acquire best professional skills and knowledge. Article 7 - Growth Accounting, Potential Output, and the Current Recession The policy makers at present time is facing dilemma in concluding the slack the economy has.
Growth accounting here helps in looking at potential output from the angle of supply side which determines sustainable and no inflationary potential output. It helps in deciding whether decrease in potential output indicates any decline in actual output in recession. The economic and financial crisis definitely undermines the prospects of potential output growth. Insight & Recommendation: If potential output is low in the economy it necessarily does not mean there is less slack in the economy. The lack of assessment of intangible investments such as research development, level of business process installation of capital can reflect volatility of the company.
Growth accounting gives a good glimpse as to the productivity of the company and economy. Article 8 - Lehman Bros. used accounting trick amid financial crisis – and earlier Investment banker Lehman Bros. played tricks with financial statements to make their financial status appear more credible. The report explains the way they played gimmicks with accounting to gain the confidence of investors. The report of examiner also reveal a bankruptcy of the firm along with accusation on former officers of the company for manipulation. Despite all the crisis the US government seems to be less bothered about the frauds happening in banking and investment sector. Insight & Recommendation; The failure of most of the companies lies in the manipulation of the financial statement in order to attract customers.
The more the transparency the more will be the stability of the companies in the long run. Article 9 - Thor Hammers Home Tax Lessons for a Recession The existing rule in accounting principle demands the write down of inventories at cost or market price which ever is lower. It can show a lower earning for the companies at times which is a benefit from the aspect of tax accounting system. Thor introduced a method of inventory system which complied with GAAP even though inventory hardly reflect the income level of an organization. Insight & Recommendation: The write down of inventories shows the round up value of the products held up in their company.
But variation in prices can also show fluctuation in tax rates which is a benefit for the company but not for government. Reference list Accountancy Age (2009).
ICAEW: global accounting rules needed for financial crisis. Incisive Financial Publishing Limited. http: //www. accountancyage. com/aa/news 1775139/icaew-global-accounting-rules-financial-crisis. (accessed: 10.January. 2010). Christy Kearney. (2009). Recession Accounting. OmniPro. http: //www. accountingnet. ie/business_finance/Recession_Accounting. php. (accessed 11.January. 2010). David. M.Rowe. (2008). Fair-value accounting: implications for liquidity risk management. RMA Journal. http: //findarticles. com/p/articles/mi_ m0ITW/is_2_91/ai_n 31524110/. (accessed: 11 . January. 2010). Harry. Kafka. (no year). Helping your clients and your Accounting firm survive recession. HDK Consultants Ltd. http: //www. accountancymarketing. co. uk/recession help. html. (accessed: 10 . January. 2010) James. Wales. (2009). How to stay ahead in accounting and finance during a recession. bookkeeper Melbourne. http: //businessimprovementteam. com/how-to-stay-ahead-in-accounting-and-finance-during-a-recession. html. (accessed 11.january. 2010). John Fernald & Kyle Matoba. (2009). Growth Accounting, Potential Output, and the Current Recession. Federal Reserve Bank of San Francisco.
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