Stress Testing International Financial Reporting Standards (IFRS): Accounting for Stability and the Public Good in a Financialized World release_gn6ihdvubnfl3ik3f7blbuqh3u

by Colin Haslam, Nick Tsitsianis, Razvan Hoinaru, Tord Andersson, George Katechos

Published in Accounting, Economics, and Law ? A Convivium by Walter de Gruyter GmbH.

2016  

Abstract

<jats:title>Abstract</jats:title>The recent Maystadt report (2013) challenged the European Parliament to modify governance arrangements surrounding the design and endorsement of international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB). In addition the Maystadt report constructs an argument that accounting information has the capacity to also modify behaviour and that this might not be conducive for the European public good, financial stability and economic development. In this paper we argue that IFRS need to be stress tested for their impact on firm-level financial stability in a financialized world. The financialized firm can revalue a range of assets to their market value crystalizing future earnings into current values but these valuations can become impaired. Asset value impairments will be charged to shareholder equity but this is being hollowed out because a higher proportion of earnings are being distributed to shareholders. Accounting disclosures are not only an information feed to users they inform the stewardship and control of a firm's resources and in the financialized firm the potential for financial instability is heightened and this can translate into a moral hazard for society.
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Date   2016-01-01
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