The Lebanese Association Of Certified
the 17th International Congress 22 and 23 April 2009
2008 : Turbulent Year, Repercussions On 2009
Global Financial Crisis and Accounting Profession
Naim Saba Khoury
Global Financial Crisis
- Mortgage loans in U.S.A.
-S iti ti d
Securitization and cycling of such mortgage loans.
li f h t l
- Inadequate regulatory supervision of banks and financial institutions:
• Asset quality.
• Capital adequacy.
• Accounting profession
• Corporate governance.
• Risk management .
• Derivatives .
• Ineffective due diligence .
• Non prudent expectations.
- Lack of regular supervisions of rating agencies .
- Global capitalist system .
• Acted in contradiction of corporate social
• Market forces.
• Lack of trust .
• Uncertainty in market .
Global Financial Crisis And Accounting
Gl b l Fi i lC i i A dA i
The factors that led to the global financial crisis were
attributed to economic causes and not to accounting
standards i.e. Fair value accounting
Questions Raised As A Result Of
Global Financial Crisis
- Can we blame the accounting setting standards
for d ti ff i l ti f
f adoption of fair value accounting for
- Has accounting contributed to spreading and
deepening the crisis in the global arena?
- Does the return to the use of historical cost
method instead of fair value method provide
more benefits for financial reporting purposes?
Answers In Response To Questions
- Arguments on fair value estimate and measurement
have taken place before the crisis and are still
ongoing however the debate did not at all address
rejection or suspension of fair value accounting.
- Fair value accounting responses to economic value
which provide more meaningful and beneficial
information for the users of the financial statements.
- Historical cost method shall not reflect fair value and
thus the financial statement shall fail to reflect full
transparency. In addition, management can manage the
profit according to its intention, Also financial
statements shall not disclose all risks involved in the
- Fair value accounting is reflecting what is occurring in
the market and therefore recognizes and reports losses
- Without using fair value accounting, losses can not be
l d d d hi h h f i
revealed and reported, which means that fair value l
accounting leads to a fair and true view of the financial
- Promote educational programs and awareness among
auditors for accounting and auditing statements related to
- Strengthen global convergence for financial reporting and
establish joint committee with U.S.A for the crisis.
- Develop debates on best practice to the audit of financial
- Increase t
I i fi i l ti
transparency in financial reporting
- Audit of estimates and valuations in the case of market
- Audit Alerts.
- Accounting and auditing amendments.
- R d i G
Recommendations to Group of T f Twenty - G20
The Crisis And IFRS
- Accounting standards amendments due to the crisis
• IAS No. 39
- Reclassification of financial assets out of trading category
in particular circumstances.
- Transfer from available for sale category to the loan and
receivable category financial asset that met the definition of
loans and receivable, if the entity has the intention and
ability to hold for foreseeable future.
• IFRS (7)(7
in response to amendment of IAS 39
1. Amendments of May 2008 resulting from the improvement
project, effective date January 1 2009.
IFRS (5) Non. Current asset hold for sale and discontinued
IAS (1) Presentation Of Financial Statements.
IAS (16) Property, Plant And Equipment.
IAS (19) Employee Benefits.
IAS (20) Governments Grants.
IAS (25) B i C t
IAS (27) Consolidation and separate financial
IAS (28) Investment In Associates.
IAS (29) Financial Reporting In HYP
IAS (31) Interest In Joint Venture.
(32) Financial Instruments – Presentation
IAS (36) Impairment Of Assets.
IAS (38) Intangible Assets.
IAS (39) Financial Instruments, Recognition
IAS (40) Property
IAS (41) Agriculture
2. Other Amendments
IFRS 1 First – Time Adoption of IFRS.
IFRS 2 Share Based Payment.
IFRS 3 Business Combinations.
B i C bi ti
IFRS 7 Instruments-
Financial Instruments- Disclosures
IAS 1 Statements
Presentation Of Financial Statements.
IAS 27 Consolidated And Separate F/S.
IAS 28 Investments In Associates.
IAS 31 Interest In J.V.
IAS 32 Financial Instruments, Presentation.
IAS 39 Financial Instruments, Recognition
Fi i lI R ii
Global Financial Crisis And Auditing
- IFAC issues two alerts as follows:
• Challenges in auditing fair value accounting estimates.
• Audit consideration in respect of going concern.
p g g
- The crisis key audit and accounting discussions are
focused on various topics including: Valuation,
impairment, liquidity, market confidence, risk
management, transparent disclosure.
- Madoff Case
- IFAC indicates opposition to a more radical change of
the use of fair value accounting without due process.
Key Auditing Issues C
K A diti I t To
- assets goodwill
Intangible assets, goodwill.
- Going concern.
- Impairment of assets.
Intangible Assets, Goodwill
- Goodwill accumulated in the boom as a result of
merger and acquisition transactions.
- As the economy deteriorated g
y goodwill values declined,,
and impairment losses were incurred.
- Goodwill book values in (s & p 500) are valued at 2.6
trillion or 10% of their total assets i.e. shall absorb
equity value (Gold Man Sacks).
- Goodwill at AOL Time Warner is $100 billion, in
Royal Bank of Scotland amounted to $6 billion.
- Going concern assumption is a fundamental principle in
the preparation of financial statements.
- Assessment of the validity of such assumption is the
responsibility of management (BOD).
i f h f i
- Appropriateness of the use of going concern assumption i
should be considered by the auditor.
- The financial crisis led to lack of funds to entities, which
may affect the entity ability to continue as a going
- Disclos res req ired in the financial statements are
driven by management.
- A need to include an emphasis of matter in the auditors
report should be considered.
Impairment Of Financial Assets
- Prolonged decline or other than temporary decline.
- Specific factors.
- Other factors:
- Intent and ability to hold investments for a sufficient
period to recover or to decline.
- Financial condition of the company.
- Matters that affect operations of the company.
- Length of the time the carrying amount was less than cost.
- Materiality of the decline.
- Evidence to reach conclusion.
IFAC Recommendations To
Group Of Twenty (G.20)
Accountancy profession plays an essential role in resolving
the financial crisis and in building a reformed international
IFAC, in helping to strengthen this role, provided the
following recommendations to the Group Of Twenty (G.20):
- To adopt ISAs where they have not already been followed,
in order to strengthen transparency and accountability, in
audit of F/S and to help national and jurisdictional regulatory
p j g y
- To adopt OECD principles of corporate governance.
- To develop implementation guidance for all global standards
such as IASs, IFRS, OECD’S principles and FSF.
- Establish international, principles-based threshold
competencies for senior financial officers in public interest
companies i.e. training in corporate ethics, knowledge and
applications of financial reporting standards, CPE, rules and
- Reform of enterprise risk management systems and senior
- To adopt IPSAS
- To acknowledge the importance of SMEs.
To ld b k d h i i l
- T support world bank and other international
institutions to assist countries to strengthen the
financial implementation of high quality models
fi i li l i f hi h li d l
of reporting infrastructure. To establish and
h i l f i l b di
strengthen national professional bodies .
- To support (ROSC) – Report on observance of
standards and codes.