Three Questions in AccountingIntroductionThe latest financial crisis has led to a forceful discussion in accounting circles about the advantages and disadvantages of the fair-value accounting (FVA). The discussion has stood in the way of the future of FVA as well as in the way of the plans of the parties responsible for setting accounting standards to push FVA to other correlated quarters. Four main concerns have predominantly been brought forth in an effort to formulate good judgment when it comes to FVA namely; what is novel and what is special regarding FVA as compared to other accounting standards, as much as the concerns brought forth in the discussions might hold some water when it comes to adopting pure FVA during financial crisis first’, secondly, there is no clarity concerning the extent to which the financial crisis is applicable to FVA as predetermined by the accounting standards, thirdly, Historical Cost Accounting (HCA) cannot be the remedy considering that it also has problems of its own which in this case might be bigger than those associated with FVA and fourthly, FVA has its own problems and specifically when it comes to legal action in its implementation.
This paper will look at various issues that have been associated with FVA, its role if any in the recent financial crisis and how the International Accounting Standards Board (IASB) has responded to the whole issues and the effects this is likely to have on the global financial stability in Part A of the paper. Part B will specifically look at the IAS39 standard which is one of the standards by IASB due to the attention that this particular standard has attracted in the backdrop of the recent financial crisis, its problems and the efforts that IASB has made to improve the standard.
Part C will seek to establish the processes and the reasons behind the Australian Accounting Standards Board’s (AASB) response to the recent financial crisis as well as the influence that IASB has on AASB when it comes to the pursuance of a worldwide union of Australian accounting standards. Part AThe role of FVA in the recent financial crisis has led to a serious discussion regarding policies among bodies such as the US Congress, the banking sector, the accounting regulatory and the EU among others.
Opponents of FVA are of the opinion that FVA has had a major role in the recent financial crisis and that it worsened an already bad situation for institutions across the world. Proponents of FVA are however of the opinion that FVA had nothing to do with the recent financial crisis and that as Veron among other writers have put it, “FVA merely played the role of the proverbial messenger that is now being shot” (Veron, 2008 ; Turner, 2008).
Others such as Laux and Leuz are of the opinion that FVA is not liable for the recent financial crisis and also that it is not a mere structure of quantification that simply gives account of asset values with no economic effects on its own (Laux & Leuz, 2009).