NAME Awais
SECTION A
SUBJECT MFR
TEACHER SIR Ubaid-ur-Rehman
REG NUM BAF05191027
TOPIC The Impact Of Accounting of Global Financial Crisis
Global Financial crisis
In 2001 the interest rate in US was at 1% due to which people will not want to invest in
stock market and they also not want to invest in bank because of low rate of interest and at
that time the prices of house is as much low and government also encouraged the public to
buy houses due to the low rate of interest on loan general public are interested in
borrowing loans from bank and want to buy house and on the other side the investors are
looking for their new investment market in which they can invest at that time the prices of
house is continually increasing and investors thought that it is a time to invest in real estate
market and the investors start investing in the market and they think that in US the price of
real estate market will increase and it will be beneficial for them in future this encouraged
them to invest and the increasing in demand and the speed at which real estate is
continuously growing investment banks also show their interest in market as we know bank
help the general public to deposit the amount in different types of accounts such as fixed
deposit current account and saving accounts and in other side the investment bank help
companies in mergers and accusation and sale durative products and buy derivative
products and know due to the low rate of interest investment bank buy loans from banks
and make a bundle of complex derivative products which include loans that bundle is known
as CDO and the credit rating agency rate those CDO by investigating those loans and the
rate the CDO and then those CDO was sold by investment bank to the investors in those
CDO most of the CDO were rated as AAA by rating company AAA is the highest rating of CDO
and know in this real estate race the Banks Investments Banks and investors are involved
and in case when bank provide housing loan to general public they investigate their credit
history but in this race the bank provide also loans to the people who are not able to payoff
dues of loan and in which some of the people are those whose income are much low in
compare of the value of loans and when the investors see the rating of rating agency which
is AAA they come more interested in buying CDO from investment bank and in such case the
investment bank earn more profit as compare to their daily monthly or yearly basis and this
process continue and in result the investment bank earn billions dollars they only see the
benefits but they can’t think about the losses if the real estate market will fall down in
future at what cost they get loss and in this race the largest insurance company will provide
insurance on the CDO because they think that CDO are safe and they can’t get loss with the
passage of time the owners of those loans will have to pay premiums to insurance company
and those premium are the profit of company and with the passage of time after few years
when the interest rate increase those people who get the loans without any investigations
they are not able to pay that loan and then the banks start sold the houses which the
borrower buy and at the time of taking loan they (public) will not give any single penny and
recover the amount and after a time when bank want to sold the houses they in search of
buyers but they cannot get the buyers because of the increase in interest rate and the prices
of houses is start downfall and in result the amount of loan is more than the amount of
house and loan borrower also think that why should I pay off the loan whose value is less
than the value of house and in result the CDO fails and those people who buy insurance on
CDO will get profit in case and in result the investment bank will face losses and topmost
investment banks knee down and some of them are bankrupt these losses in the market of
real estate will not only hit the real estate but it also hit hardly the banks and financial and
stock market of US as well as the world.
Causes of Global financial crisis
Interest Rate
Loan providing without investigating
Policy
Increase in borrowing of loans
Housing Bubble
Rating Agencies
1. .
The Sound effects Of Global Financial Crisis
The exchange rate will also devalued in October 2009
The adjustment in the current account also financial implications for the global in
each of the crises the effected economies started with large current account deficits
the global also influenced by the effects of current account changes.
Due to the reduced in value of currency it will effect the banks and can lead the
banks to the crisis which rather them to borrow local currency rather than foreign
currencies
The US stock market also effect the other regions it led to the change of prices in oil
and other commodity trading’s such as gold etc…
Global Financial Crisis and its causes on accounting
1. In the first it is seen that the auditors and the performance of the
auditors, especially in private firms and due to the poor management
teams, are exerting pressure from within and outside the
organizations for high profitability, which will force the management
to take action that is not acceptable.
2. Second that none of the country practice on the current situation of
the market most of the countries have valuable flexible accounting
practices if they practice on time may be these crisis may not be
faced
3. Third one is that the greediness of the market investors which
enforced the auditors through the organization management to take
the step which is not acceptable
Effect on Accounting due to Global financial crisis
Fair value accounting (FVA) poses a threat to the convergence of accounting
practices worldwide.
It has been seen as one of the factors contributing to the recent financial
crisis.
Considering that FVA has been adopted by International Financial Reporting
Standards ( IFRS), this financial crisis poses questions regarding its suitability
for financial reporting around the world.
This study examines important consequences for financial reporting of the
global financial crisis, in particular trying to determine whether the trend
towards convergence has been impeded by the inherent IFRS problems.
Analyzes show that, contrary to our assumptions, the financial crisis has
made the case for global adoption in accounting standards more convincing
than ever before.
Coronavirus Disease
It is unable to talk on the complete disease here but highlighted the most common points
due to which the world’s economy is unbalanced
1. The spread of coronavirus which is started from the city of Wuhan, China and
continuously with a speed it is spread over the world 190 countries in few
months
2. World Health Organization announced an emergency in the March 2020 and
announced some precaution which is advice to adopt around the world
3. In the start of spreading this disease China lockdown his hub city Wuhan with the
population of 20 million
4. When the China announce the lockdown and close all the domestic and
international flights the rest of the world start working on the lockdown but none
of the country is safe from this pandemic
5. Complete USA, European countries, Middle east and Asian countries follow
lockdown due to which the trade of goods and business is stopped and day by
day it is falling
6. The price of oil in the world is fall in international market the prices are fall to
negative and due to which most of the things of doing business going into losses
7. In Pakistan the lockdown is not completely as implemented as it is implemented
in rest of the world because as much as 20 million people are surviving their live
under the poverty line
8. Pakistan will made SOP and open the lockdown and gave permissions to small
business to work by follow the SOP
9. China recorded the largest death in the world in star but after USA is on top and
china will open few of their lockdown
10. Millions of people lost their job and millions of people are died
Impact of Covid-19 on Accounting
Due to this global pandemic situation a large numbers of firms of accounting and
auditing are temporarily closed due to which there is effect on the financial years of
industries
COVID-19 's impact on entities can manifest in a variety of ways including reduced
revenue, supply Network disturbances, impermanent postponements of businesses,
increased exposure to credit risk for consumers or Those may be asset loss markers,
even over a fairly short period of time; What organizations should be considered.
As a result of COVID-19, some markets have seen a decrease in the volume or level
of operation for certain Assets and liabilities which can make it difficult for
organizations to determine whether transactions are taking place in those
transactions It is not, however, sufficient to assume that all transactions within a
given market are not orderly
Global Financial Crisis Covid-19
Global financial crisis started from USA Covid-19 spread from China all over the
world
This happen due to real estate market in This is start from China and is a pandemic
USA medical disease
Due to this crisis some of the world countries But in this case about 200 countries which is
are effected 99% of the countries effected
Due to this crises different sectors got But in Covid-19 all the businesses are
effected such as top banks and insurance temporary shutdown and trillions of dollars
companies of lose
REFRENCES
www.researchgate.net
The Impact of Financial Crisis on Pakistani Economy By Arshad Ali
www.onlinelibrary.com
www.grandthornton.com
APPENDIXES
AAA: it is a rating given by insurance agencies
COD: Collateralized Debt Obligations
