Essay: Role of Government in Financial Standards

25 Mar

Essay: Role of Government in Financial Standards

Sample Essay

The government does however use it in that sense. The recent financial crisis provides a good example of this. The mark to market rules or fair value accounting as it is referred to result in the obligations and the risky assets of the banks having to be written down tremendously which resulted in closure of many banks. It was a reflection of the undue risks that were taken by the banks and the drop in the market value of the securities that were kept on the balance sheet.

The banks and the government pressure now on the standard setting bodies is pushing towards allowing banks to record these risky assets at other values which would not illustrate such a steep drop in value as before. This change in standards can although help to stem the tide of the financial crisis to some extent and save some banks. However, this comes at the sacrifice of the investor and other users of the financial statements who will not be shown the true picture of the organization. The political pressure as a result of Congress on the FASB thus can be seen to sacrifice the social cause of the standard setting process and focus on the short term, which can further be brought into question by the nature of the campaign contributions these Congressmen attain from the same pressurizing organizations.

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