Title: The subprime crisis and the impact of accounting standards/fair value accounting: case of European and North African countries

Authors: Nadia Elouaer Ben Njima; Sonia Makni Zouari

Addresses: Laboratory Research for Economy, Management and Quantitative Finance, l'IHEC de Sousse, Tunisia ' Laboratory Research for Economy, Management and Quantitative Finance, l'IHEC de Sousse, Tunisia

Abstract: The introduction of fair value accounting is frequently mentioned as an important link in the string of events which led to the financial crisis. The present study briefly introduces the concept of fair value accounting and discusses the controversial topic of trade-offs with historical cost accounting, which it replaced. It summarises the findings reported in the academic literature on the consequences of the entry into force of this new accounting regulation in the case of banks, with particular emphasis on the role played by fair value accounting during the financial crisis. Further, our study examines the impact of the accounting treatment on the volatility of the securities to the banking during the financial crisis of 2007/2009 using a sample banks from of European and North Africa countries. The empirical results indicate that the adoption of the method of fair value reflects a truer picture of the financial position of the bank. However, adopting the same method increases the sensitivity of the institution facing a financial crisis. The volatility of the banking securities is significant during the crisis. Overall, the finding indicates excessive volatility for the European countries and significant volatility for the North African countries during the crisis.

Keywords: fair value accounting; subprime crisis; IAS 39; banks; Europe; North Africa; financial crisis; trade-offs; cost accounting; banking securities; volatility; banking industry.

DOI: 10.1504/AJAAF.2015.075098

African Journal of Accounting, Auditing and Finance, 2015 Vol.4 No.4, pp.273 - 293

Published online: 03 Mar 2016 *

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