How New Regulations Can Be Attributed to a Specific Crisis

How the introduction of new or changes to existing regulation of accounting, financial markets or commerce can be attributed to a specific crisis

Mojtaba Alalsaiednasser

Words 2651

Many believe that there is an important role of regulators to tackle crises. They should intervene in the situation and being effective part of it. Some believe that the intervention can be done by changing an existing rules or introducing new laws to protect the public interest. This attitude might be appropriate for addressing such situation. Intervention could be necessary to deal with a dilemma. New regulation may be a good track here. Nevertheless, this is not always the case. Probably, Introducing new laws or changing the current legislation is not the right action from regulators for specific issues. They possibly need to act in different way to tackle the crisis efficiently. This essay will put in light how introducing new rules or changing to the existing regulations of accounting, financial markets or commerce can be attributed to a specific crisis by examining three different crises in relation to regulation. These are, global financial crisis, collapse of big company (Enron), and climate change crisis.

First, global financial crisis led accounting bodies to change some accounting standards to relief the situation. The global financial crisis became as a slap to the regulators over the world. Regulators became regressive to deal with such crisis. International Accounting Standards Board (IASB) was under pressure from other regulators such as financial institutions, policy-makers and finance ministers. These regulators were pressing IASB to review the rules of the fair value accounting (FVA) and relax it. As a result of pressure from different areas, IASB has made amendment to International Accounting Standard (IAS) 39 which regard to Financial Instruments on October 2008 to deal with fair value issue. IASB has also set new disclosure requirement in relation to the same issue (Mala and Chand, 2012, p.35-38). Financial Accounting Standard Board (FASB) with FASB Staff Position (FSP) in the United States at the same time has posted FSP FAS 157-3 to deal with determining the fair value of assets. In April 2009 this guidance has replaced by FSP FAS 157-4 when the previous one seemed to be useless in measuring the fair value in the illiquid and unstable market (Casabona and Shoaf, 2010, p.22).

The reaction of the European Union (EU) in relation to the financial crisis was in improving financial market regulation. They created three new European authorities. Those are the European Securities and Markets Authority (ESMA), the European