The decrease in a large amount of value of the financial institutions or their assets at a sudden point of time can be termed as financial crisis. The events like crash in the stock market, crisis in the amount of different currencies can be counted under the term financial crises
U.S.A Reaction to Financial Crisis
The financial system of the United States has undergone largest perilous damage for a larger period starting from the mid of the year 2007. The financial system of U.S is totally disrupted. Many timely actions have been taken by the specialized agencies and various other authorities of the financial system so as to minimize the losses. Interest rates have been brought down by the monetary authorities; policies have been made so as to increase the liquidity level in the market. The various actions taken by the authorities are helpful only in the short run but in the long run it will take time to implement the policies and mend the losses occurred in the various sectors of the country. To face the situation of the financial crisis is a challenge for the country. New policies and strategies have been designed so as to adapt to the changes in the financial system. It has been predicted by the various authorities that this era of recession will start ending for the economy of United States at the end of the year 2009 and there will be a starting of recovery period from the middle of the year 2010. But the time period for the growth for the economy is still uncertain. Despite the effects of the recession, there are few companies which are able to make a move towards the growth. In comparison to the earlier year, the share prices of the companies have started to increase to increase this year. Treasury stress tests of the banks were done so as to judge their ability and their liquidity position. The effect of recession has also been measured on the various financial institutions and companies in order to estimate the loss caused due to recession. To face this situation of recession has become the biggest challenge for the economy of the United States. The various financial instruments are being required to make more financial disclosures. Various acts have been designed so as to keep an eye over the regulatory framework followed by the various companies. The confidence of the consumers has also decreased as measured in the economy of the United States. The United States is viewing this whole crisis as the crisis starting from the decrease in the performance of the banking sector and moving towards the crisis in the trade. There are unemployment problems prevailing in the country of the United States and various companies have decreased the salaries of the employees to almost half so as to survive themselves during this period of crisis and maintain the liquidity level. The Government of the country is taking major steps so as to maintain the liquidity level and to save the various financial institutions during this period of crisis. The crisis in the United States has also made its impact on the financial performance of other countries. The gross domestic product (GDP) of the United States has decreased a lot during this period of crisis. Due to this financial crisis there is volatility in all the activities of the trade going on in United States. In fact, the people of the United States are angry with the financial crisis going on in the country. According to them, the most of the effects of the financial crisis have affected the common people. The consumers feel that as there are flaws in the regulatory and financial system and as the risks were not properly estimated by the credit rating agencies, so they are the ones who have become the target of the financial crisis going on the country . There is decrease in the growth rate of the every financial institution and business. But the United States is still confident is that it will recover its losses early and once again the dollar will see a rise very early. United States is having the capacity to rebound itself even in such a situation of crisis. The country of United States is paying a head towards technology and the strong education system. Today, most of the efforts and policies of the United States are directed towards the improvement of the financial sector so that the country can come out of the financial crisis.
Sarbanes and Oxley Act
The federal law of United States is Sarbanes and Oxley act. Public company accounting reform is the name given for this act. This act was approved as a result of the various scandals going on in the field of accounting and management. This act is considered as a reform in increasing the confidence of the investors in the various financial institutions. The rules and regulations made under this law are applicable of all the companies as well as financial institutions. Privately held companies do not come under the purview of this law. The major reporting standards have been defined under the act. The act defines the standards relating to independence of the auditors, corporate responsibility; various financial disclosures required by the companies, accountability for various accounting frauds done, returns procedures etc. The various reasons for the designing of the act were various issues of conflicts between the auditors, inefficient management of the company, conflict between the recommendations given by the analysts of the securities, failures of banks, and decline in the value of the stocks of the internet companies. The result of the applicability of the Sarbanes and Oxley act is that there is decrease in the cost of the following the compliances and most important is the protection of the investors. The different benefits available to firms and investors as a result of the implementation of the act are - The investors can do the optimum diversification of the investments in stocks done by them. The risks related to the various stocks can be minimized. The major benefit for the companies is that the cost of the borrowing incurred by the companies is reduced. The value of the shares of the companies has increased i.e. the companies which have implemented the standards given in the act in an efficient manner and corrected the internal weaknesses of the companies have seen an increase in their share price. The strengths of the companies have increased and their weaknesses in regards with internal controls and in accounting system have reduced. The Sarbanes and Oxley act lays main emphasis on the disclosure and transparency to be maintained in the accounting systems. The act states that every company should have specific officers which should be responsible for the implementation of the internal controls of the company. The procedure for maintaining and implementing internal control over the company has been given under the act. An internal control report is also required to be prepared. This act helps the company in the identification of the various areas where are chances of the misappropriation of funds and frauds. It helps in assessing the various risks associated with the companies and to follow a particular method of reporting the different segments of the business, to measure the performance of the company. Along with all these the act also helps in the evaluation of the management. The act also contains the various provisions for the violation of any provisions stated under the act. The act contains criminal provisions for the violation of the act. With the help of the act, the resources of the business are being utilized efficiently. The confidence of the investors has increased in financial reporting after the implementation of this act. Various provisions have been given under the act for inspection of the companies. Coordination is required for the implementation of the rules and regulations associated with the act. The authorities have been prescribed under the act which will undertake the major tasks of inspection and other functions. Audit committees have been specifically designed for this purpose. This act gives a boost to the investor's confidence.
Foreign Corrupt Practices Act
Another main law of United States is the Foreign corrupt practices act. This is the main law for the related with the accounting provisions. There are two important issues regarding which this law is mainly concerned about. This includes the transparency required to be maintained in the accounting and reporting of the books. Another main aspect with which this law is related with is the bribery of foreign officials. This act was enacted in the year 1977.
Scope of the Act
According to the provisions given under this act the interstate commerce corruptly in regards with any payment to any officer or takes any personal advantage through his job is prohibited from doing such an act.
Applicability of the Act
The act is applicable to both individuals as well as companies. The persons which are called as companies and which are required to submit their reports to the securities and foreign exchange authorities are included under the category of issuers under this act. This act was enacted as a result of the illegal payments or bribes taken by the various government and officials of the various companies. This act was a major act taken by the government so as to protect the common people and the various persons associated with the companies. This main aim of the act was to increase the confidence in the business management of the various companies. The antibribery conventions were the main name given to the provisions of the act. The act is equivalent for everyone. Even the foreign agencies and the employees of the international organizations come under the purview of this act. The main focus given under the act is not on the amount of bribe but the intention of the person taking the bribe. Another main task is to require the companies to follow the rules and regulations maintaining transparency in the actions of the company. There is requirement to maintain books of accounts in a fair and effective manner. There should be a proper check on all control systems of the organization. Companies are following the standards as given by the various regulatory agencies. The examples of the companies which help other companies in maintaining proper accounts and in maintaining transparency in the whole system include lexis nexus. The provisions of the foreign corrupt practices act are implemented by the department of justice. The persons against whom any case is filed are given the right to present their views that the payment made by them to the government officials is within the purview of the act. The persons involved in the bribery events are severely punished under the act. The United States is the only country where there are special provisions enacted under the law for the persons involved in the bribery. This act is seen as an economic reform in the history. New rules of conduct to combat extortion and bribery have also been incorporated. More and more companies are following the rules and regulations and standards given under the law. On the basis of this act, various guidelines have been established. "Declaration against corruption and bribery" in International commercial transactions has been established by the general assembly of the United Nations. The actions taken in this assembly include the refusal of the deductions of the tax liability paid as bribes to the officers of the government department. To give the punishment to the officers of the foreign government if they are involved in the matter of taking the bribe is also an agenda discussed under this event. The principles and practices of implementing the rules and regulations should be followed appropriately. This law has really helped in increasing the confidence of the investors and ensures implementation of proper rules and regulations in all the countries. It acts as an effective measure in fighting against bribery and corrupt practices of the prevailing system.
The department of ethics is responsible for the financial disclosures. Financial disclosures are important to be maintained so as to keep an eye over the whole financial system and to prevent financial crisis. There are specific officers which are specially assigned the task of maintaining financial disclosures. There are specific formats in which the financial disclosures are required to be done. The financial disclosures are required to be maintained in the field of accounting. This area is required to be updated on a regularly basis. The financial disclosures of a company are affected by the various factors. These include - Ownership - The financial disclosures done by a company are affected by the ownership of the company. On the basis of ownership of the companies the financial disclosures are maintained. Listed companies - The companies which are having their shares listed on the exchange are more concerned regarding the financial disclosures of the company. The companies whose shares are listed on both the foreign as well as their own countries stock exchanges follow more appropriately the rules and regulations related to the financial disclosures of the books of accounts. Growth - The companies which are growing continuously and are having higher chances of growth give the financial disclosures more accurately. Dividend - The financial disclosure of a company also depends on the amount of dividend distributed by the company. The company which distributes more and timely dividend on its shares will be more effective in maintaining the financial disclosures of the company. Size of the audit firm - The size of the audit firm gives a brief idea of the level of the disclosure done by the company. Wider the size of the company, more specific and wider will be the disclosures of the company. Size of the companies - The companies which are of larger size try to reduce the financial disclosure done by them. However, there are certain regulatory authorities and acts which require the companies to present the financial information along with the full disclosures. More foreign sales - The companies whose products are more sold in the foreign countries show their more disclosures in the books of the accounts. Industry type - The companies which are of Non trading type are more open in making financial disclosures regarding the books of the accounts of the company. The financial disclosures should be done appropriately by the companies and as per the guidelines specified in the act. The financial disclosures of the company should state all the relevant facts and bring transparency in the implementation of the internal controls of the company. The financial disclosures can help a lot in revealing the financial position of the company. Financial disclosures help a company and various other regulatory agencies so as to know about the accurate position of the company. This prevents in collapse of the financial institutions. The financial disclosures are appropriately in U.A.E and there is more transparent system of maintaining accounts and their disclosures. Transparency There should be transparency while maintaining books of accounts of the company. Various kinds of rules and regulations and standards have been established by the companies so as to maintain the level of transparency. International disclosures standards are the guidelines which have been established by the companies so as to maintain transparency in maintaining the books of accounts and other financial disclosures. These standards were mainly drafted in the United States of America along with the coordination of Europe. These various standards are required to be maintained by the company and must be included in the prospectus. These standards of transparency have been implemented in most of the countries of the world. Now new trends have been established in the field of disclosure. The specific guide of the information has been given regarding which the companies must specifically give information. Some of the important points which help in evaluating the transparency of the companies include the decisions given by the credit rating agencies regarding the performance of the company, performance of the shares of the company, major transactions related with the securities of the company, defaults of any payment done by the company, contingent liabilities arising as a result of some important events, transactions related to the issue of shares of the company, rules not followed by the company regarding professional ethics, waivers done by any director or any other officer of the company, changes in the rules and regulations of the company, any major losses occurred to the company, any major amount written off by the company, changes done in the policies or rules and regulations of the company, resign given by any major official of the company, important contracts for the company, listing of securities in any stock exchange etc. The transparency is required to be maintained in every organization. If transparency is maintained in every organization, then there are lesser chances of collapse of the different financial institutions. The financial institutions which maintain proper accounting system and transparency in their system of maintaining accounts can properly analyze their strengths and weaknesses. Such a system will also help the organizations in maintaining internal control in the organization. The effect of financial crisis over the financial institution can be accurately and timely analyzed and therefore timely actions can be taken so as to help the institution have lesser impact of financial crisis
Securities and Commodities Authority
A public authority named as securities and commodities authority was established in the year 2000. This authority is a legal entity. This authority performs the task of reviewing the performance of the financial and administrative system of the markets.
Goals of SCA
To increase the efficiency of the financial market. Investors protection To make available more opportunities or alternatives for investment purposes. To keep an eye over the licensing of the securities in the financial market. To get the important reports published on proper time. To make timely amendments in the law. To expertise in the dealing with securities. To make the investors aware and to increase their confidence in regards with dealing with securities. To make the different rules and regulations related to the different persons associated with the dealing of securities.
Abu Dhabi Securities Exchange
Abu Dhabi securities exchange is a stock exchange located in Abu Dhabi. The shares of more companies are listed on Abu Dhabi securities exchange in comparison to the Dubai financial market. Some of the main activities of this stock exchange include making provisions for the trading by the investors, to provide necessary information to the public, to keep an eye over the whole system so that all the important financial disclosures are properly done. The emirates securities and commodities authority take into consideration all the important aspects related to the Abu Dhabi securities exchange. The companies of various sectors are listed on this stock exchange. The value of the trading activity as measured on daily basis is usually 100s of millions dirham's. The largest company listed on the Abu Dhabi securities exchange is Etisalat.
Dubai Financial Market
Another stock exchange located in Abu Dhabi is Dubai financial market. Most of the companies listed in this stock exchange are of Abu Dhabi. In order to trade the international stocks the Dubai international financial centre was set up. This stock exchange is a public joint stock company which is located in the United Arab Emirates.
Objectives of DFM
To provide facility of serving the economy in a better and effective manner. To protect the investors. To maintain the appropriate amount of liquidity in the market. To check that the electronic system works in an efficient manner. To collect the important data.
Even in this period of financial crisis, the Abu Dhabi securities market, the Dubai financial markets has earned the profits. The various companies listed on the stock exchange are earning profits except few. All these institutions are performing the task of financial regulators in this period of financial crisis and helping the economy to regain its strengths and face the global challenges of financial turmoil.