The global financial crisis of 2008 began with the rapid decline in housing prices, increased interest rates, and the increase in subprime lending which lead to a growing rate in mortgage foreclosures. The subprime mortgage crisis has affected various financial institutions and banking systems across the world in various ways. With the fall of large financial institutions such as, Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch, and American International Group (AIG) the Federal Reserve have responded in an attempt to relieve the crisis of the credit markets. The fall of financial institutions has created a domino effect on the economy. Thus, there is very little that the Federal Reserve can do to avoid the collapse of other financial institutions. In addition to affecting the financial institutions, the financial crisis has affected accountants in various ways. Although the global financial crisis has affected overall businesses in a negative aspect, the effect on accountants haven’t been as negative.
Due to the past accounting scandals, there has been a significant increase in financial laws, stricter government regulations, and increase in risk prevalent in financial institutions has in turned increased the demand for accountants, despite the economy. The Public Company Accounting Oversight Board established the Sarbanes-Oxley Act of 2002 which requires all publically traded companies in the United States to follow specific rules and regulations. Abiding by these regulations increases the costs of publically traded companies and in turn increases the demand for accountants and auditors. As a result of the financial crisis, there is an increased risk within the financial aspects of companies; therefore, the need for risk management has increased within financial institutions. Companies are tending to show a greater need to understand and
The concept of globalization has a strong correlation with the global financial crisis of 2008. Because of globalization, countries are interlinked and dependent on one another now, more than ever before. Globalization has also affected the demand of accountants in various ways as well. The current global financial crisis has a strong correlation with globalization. Presently, financial institutions from across the world are more dependent on one another than companies have been in the past. Consequently, the fall of large financial institutions can strongly effect other financial institutions across the world because of the dependence on one another. An additional aspect of globalization that effect accountants is the change to using International Financial Reporting Standards (IFRS). The transition from Generally Accepted Accounting Principles to International Financial Reporting Standards has a great impact on accountants during this time. Accountants are preparing for the transition, which also causes a greater demand for accountants despite the global financial crisis. Accountants who are knowledgeable about the subject area are in a higher demand, compared to accountants who are less knowledgeable. Although countries are already interlinked, adopting IFRS will only ensure a stronger connection between countries because they will be using the same regulations which can have an impact on the global financial crisis.
Although, some of the effects on accountants are positive, negative effects still exist. The global financial crisis is affecting all businesses in the United States and worldwide overall. Due to the crisis, businesses are cutting costs throughout their organizations. For instance, clients of accountants are spending less and are cutting back tremendously because of the economy. As a result, accountants are losing clients in which they have built relationships with because their clients do not have the revenues to support the services of accountants. Thus, accountants are losing clients, and therefore are also losing revenues. In return, accounting firms are also cutting costs along their organizations to account for the decrease in clients. Currently, accounting firms are cutting costs by lowering the amount of employees to hire. Recruiting practices have been increasing within the past couple of years but with the economy approaching a recession, the recruiting practices have slowed.
Although the global financial crisis of 2008 has a negative effect on businesses overall, the effects on accountants aren’t as negative. It is evident that accountants are in high demand at this point due to many factors in spite of the economy. Accounting is a profession that is fortunate to still be in high demand during the global financial crisis of 2008.
Sources:
http://www.house.gov/jec/studies/2008/The_US_Housing_Bubble_June_2008_Study.pdf.
http://accounting.smartpros.com/x63589.xml
http://accounting.smartpros.com/x63589.xml
