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The Role of Accounting in the Recent Financial Crisis

The Role of Accounting in the Recent Financial Crisis

The recent global financial crisis had a wide range of impacts on business operations and the global market stability. The causes of the crisis were attached to different parties, especially the ones with the responsibility to carry out operations that aid in the achievement of market stability. In this view, the role played by financial reporting and accounting in the provision of reliable and unbiased information during the financial crisis remains a matter of keen attention. The existing financial standards could have contributed to financial stability through the provision of transparent information. However, as financial institutions were highly discriminative in the amount of information they exposed to the market, users of financial statements information did not have adequate information to use in making decisions relating to investment and other financial activities in the market.

In determining the role played by accounting in the recent financial crisis, the professional responsibility of auditors in providing reliable and credible information is of keen interest. As most of the auditors could not directly reflect the failing stability of such entities as financial ones, they ended up providing inadequate information to investors. Additionally, the standards formulated and implemented by the IASB required discriminative inclusion of some financial instruments. As a result, the information communicated by the financial statements was inadequate to deliver a complete financial picture to the investors and other participants in the market. Owing to the importance of the credibility of financial information in the market, financial accountants played a role in causing or aggravating the recent financial crisis.

The Role of Accounting in the Recent Financial Crisis

During the 2008 global financial crisis and the period surrounding the global economy's attempts to recover from it, there were different views as to the institutions and other entities responsible for it. However, the main entities that were viewed as playing a critical role included accountants, auditors, investment advisors, financial institutions, credit-rating professionals, as well as auditors (Kothari & Lester, 2011). However, the determination of who was clearly responsible for it could not be made with finality. With this in mind and with the main aim of determining the role played by accountants towards the upcoming of the crisis, the section could be divided into different elements of discussion.

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