Politicization of Accounting

1 Politicization of Accounting The Great Recession began towards the end of 2007, and ended in mid-2009. It brought about a drastic decline in the economy of the United States. It was characterized by a high rate of unemployment and a decline in the GDP. The crash of the stock market occurred as a result of the Recession. It was caused by the negligence of banks and financial institutions in applying accounting principles and lending money, thus exposing themselves to a high risk of failure. Essentially, Congress had the right to authorize the SEC to perform a review of the accounting standards.

1. It was right for Congress to authorize an reexamination of an accounting standard The 2008 U.S. stock market crash had a severe impact on not only the United States’ economy but also the global economy. The economy shrank drastically, resulting in a massive loss of jobs and assets across the United States. To avert the crisis, Congress passed the Emergency Economic Stabilization Act of 2008, which recommended that the Securities and Exchange Commission (SEC) examine market-to-market accounting standards (Orsholits, 2014).Considering the magnitude of the situation, Congress did the right thing in recommending that the accounting standard be reexamined because the economy was in severe crisis at the time, and this issue needed to be addressed to prevent a further collapse of the economy.

Buy this excellently written paper or order a fresh one from ace-myhomework.com

2

2. The SEC properly addressed the standards that are used in market-to-market accounting The Securities and Exchange Commission plays the role of examining the standards that are used in market-to-market accounting, and also overseeing their implementation (Gibson, 2011). SEC therefore had the right and responsibility of amending and developing the accounting standards.

3. The SEC has the authority of amending the market-to-market accounting standards for the GAAP (Gibson, 2011). The collapse of the stock market and subsequent economic recession raised concerns about the correctness and transparency of the accounting standards.

Congress needed SEC to ascertain that the standards of market-to-market accounting were of the quality required of them, and whether there was a loophole in them that could have contributed to the economic crisis (Harris, 2016). The SEC has the authority to establish the accounting standards to be used in the United States, and to make any needed reforms to ensure the stability of the economy.

4. The Financial Accounting Standards Board (FASB) followed the standard steps in solving the issue of market-to-market accounting standards. The FASB is selected by the SEC as the body responsible for the instituting and amending the Generally Accepted Accounting Principles (GAAP) (Gibson, 2011). The GAAP is therefore responsible for ensuring that companies adhere to the established principles to limit the occurrence of financial crises. To solve the economic crisis, FASB made three additional job descriptions to increase the rigor of the disclosures made on fair value measurements and securities (Orsholits, 2014). The rules established were effective because they helped banks to reduce losses.

Conclusion

3 The revision of the GAAP and enforcement of more thorough procedures of fair value accounting helped to avert the financial crisis and restore stability to the US economy. It may not be possible to control the occurrence of financial crises such as a stock market crash, but it is the responsibility of SEC and FASB to design and implement sound accounting standards that will minimize the impact of their occurrence and facilitate faster economic recovery.

4 References Gibson, C. H. (2011). Financial reporting & analysis: Using financial accounting information (13th Ed.). Mason, OH: South Western/Cengage. ISBN-13: 9781133188797 Harris, J. (2016). Global capitalism and the crisis of democracy. SCB Distributors.

Orsholits, D. (2014). The Causes and Consequences of the 2008 Financial Crisis. Retrieved from https://www.unige.ch/sciences-societe/socio/files/4514/2045/3683/BApaper2014-Orsholits.pdf