The Role of Financial Reporting in the Global Financial Crisis

You will write a critical review of a current journal article of exactly 1,000 words.

Please endeavour to make your review critical. The critical review will be marked

on relevance, criticality (ability to question), evaluation, quality of analysis,

appropriate use of references, and length. The review should be exactly 1,000

words; reviews which are longer or shorter will have marks deducted (please refer

to the attached marking criteria).

Journal article:

A Review of the Role of Financial Reporting in the Global Financial Crisis’

Australian Accounting Review No.60, 22 (1) pp1-14

The Global Financial Crisis (GFC) of 2007-2008 has been attributed to many causes and

factors in the banking sector and other business fields. Many scholars have attributed GFC to

financial reporting especially the fair values (FVs) common in the financial reporting instruments

of the banking institutions (Barth & Landsman; David 72). Even though, Pinnuck in his article

does not refute that weaknesses of financial reporting prior to GFC could have worsened the

crisis, he argues that empirical evidence has not been adduced to demonstrate that use of FVs

exacerbated the crisis (5). Therefore, he contends that more research should be conducted in

order to establish whether fair value accounting (FVA) before GFC occurred exacerbated the

crisis since there is possibility preceding FV gains may have been misleading (Borio, Claudio

and Disyatat 203). Pinnuck opines that most of the current analysis has revolved excessively

around valuation purpose of financial reporting (Bonaci 24). Yet, financial reporting also

performs stewardship objectives that need more consideration in order to facilitate a

comprehensive analysis of the role that financial reporting played in the GFC.

Arguably, by recognizing that FVA played a role in exacerbating the GFC prompts

various legitimate questions concerning the role of FVA in the GFC. It is for instance prudent to

find out whether FVA regulation worsened instability in financial markets and thus intensified

the crisis.

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