Financial Management and Accounting

Graduate School of Management and Technology

Announcements/News

The Credit Crisis in a Snapshot

As students of finance and accounting, there is a lot to learn from the history being lived this month. Some individuals in the media are questioning whether flaws in foundational principles of economics and finance are the source of our credit crisis. This is not the case. What we are seeing are the behavioral aspects at work that lead to our current situation. 

In an informative timeline, The Washington Post documents the development of the current credit crisis and captures the behavioral pitfalls that trapped participants in terms of excessive optimism, overconfidence, confirmation (information) bias, control illusion and loss aversion, that many individuals succumb to when engaging in financial decision-making. 

The Washington Post timeline shows investment dollars, losses, and social-economic factors that influenced the course of events. To view the timeline, see Anatomy of a Meltdown: The Credit Crisis.

FEI’s 2008 Top Challenges for Financial Executives

The February 2008 issue of Financial Executive listed the following as the most pressing challenges for CFOs in 2008:

• Fair/Value Measurement – Application for FASB 157 was delayed due to issues remaining around valuing assets and liabilities with no active markets.
• Global Convergence of GAAP and IFRS – CFO’s question if convergence isn’t already impacting Small and Medium Sized Entities (SMEs).
• Complexity in Financial Reporting – The SEC Advisory Committee on Improvements to Financial Reporting (CIFR) is due to release its report later in 2008.
• XBRL – The SEC continues to pressure for adoption.
• Business Combinations – FASB & IASB released a new standard on business combinations, effective for fiscal years ending, Dec 15, 2008.  It includes reporting of contingent assets and liabilities at fair value, with future adjustments going to earnings.
• Internal Controls - COSO report on Monitoring Internal Controls expected out by June 30.
• Healthcare – There will be pressure for companies to manage their costs better.
• Corporate Taxation – There is speculation that tax deferrals for multinationals will be eliminated, as will LIFO accounting for taxes. 
• Rating Agency Regulation – SEC ramp-up of credit rating agencies may continue a tightening on credit.
• IRS Policy of Restraint/Privilege – FIN 48 may motivate the IRS to more frequently ask for tax accrual workpapers than in previous years.