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The financial turmoil from 2007 that caused recession around the world is called the Global Financial Crisis The few causes for this crisis for the period were the misperception and mismanagement of risk, the level of interest rates and the regulation of the financial system. The basic driver that caused the crisis was psychology or the perception of the risk. Usually, there is cycle of risk going around the, but when the risk is minimal, the human psychology thinks that the good time never goes away. And when the cycle turn-around, people tend to averse it. During the Global Financial crisis, it has been observed that the investors’ perception of risk changed, and the investors were diverged from US companies at the riskier end to the US government bonds and other securities which seemed safer. Second factor was the low level of interest rates at the beginning of the decade which was unusually low for one of the major economy of the world compared to the historical rates. Coinciding with that, the bond yields were also lower. It was observed that strong investor demand had pushed the rates down. Those investors were central banks and other government agencies in emerging economies which were accumulating foreign reserves. Lack of appropriate financial regulation in some countries is also known to cause financial crisis. Some of the shortcomings were capital requirements on financial product, the use of credit ratings provided by private agencies in the bank, credit rating agencies regulating themselves and the structure of remuneration arrangements. In the US, the mortgage market took advantage of low long-term interest rate. The mortgage lenders started lending money to public without the insurance of government sponsored enterprise. This is where the first sign of crisis was seen in the US. Since the lending had become easier the default cases were causing problems. The arrears rate started to rise more. The first consequence of this was the failure of US mortgage lenders as they were liable for the debt owed by defaulters. As the lenders were already running out of business, the market participants began to liquidate. As a result, the asset backed commercial paper market froze in several countries. This caused the rates at which banks lend each other started to widen. As investor and others realized the consequences of the turmoil, other asset markets were also affected, and the share prices fell sharply all over the world (Ellis).
Accounting standards and Global Financial Crisis
During the financial crisis, it was noted that regulations regarding accounting and auditing standard had also contributed to GFC. The purpose of Accounting standard setter is to promote unbiased reporting, transparent and relevant information about the economic performance of the business to investors and other participants in the financial market. Both the regulators and the participants rely on financial reporting for decision making and also are interested in market stability and economic growth. Therefore, the Accounting Standards Board needed mechanism to enforce the mechanism of Accounting standard(Ojo).
As a result of this, International Accounting Standards Board recently concluded its response to global financial crisis. The recognition of credit loss on loan was identified as in the existing standard, so the new standard requires expected credit loss in timely manner. The new model also needs the firms to reflect its risk management activities to reflect better on the financial statements.
In Australia, the ?nancial crisis period caused the regulatory pressure to increase through auditory norms ASA 701 (AUASB 2007b) and ASA 570 (AUASB 2007a).
These norms caused auditors to feel pressured to detect the ?nancial dif?culties of their clients before bankruptcy, as they face serious ?nes if they do not communicate this situation. In this regard, Xu et al. (2013) found that auditors, after the new auditory norms were passed, showed a greater tendency to issue a going-concern report to the company, mainly to avoid the greater risk of lawsuits and the resulting loss of reputation.

Auditing standard ASA701(communicating Key Audit Matters)

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The new Auditing Standard ASA701 operative for financial reporting periods ending on or after 15th December 2016 is required by the legislation to be included in independent auditor’s report and its aim is to develop standards that are of highest quality and have a clear public interest. ASA 701 communicating key audit matters is Australian equivalent of ISA 701 and the difference is that it has been developed more to suit for Australian legislation. This standard requires explanations of material related to Key Audit Matters which reflects AUASB’s commitment to adapt with enhanced changes to auditor’s report developed by IAASB. The changes features making to compulsion to communicate KAM in auditor’s report. ASA701 applies to audit of financial report for a financial year or half yearly report or a complete set of financial statements. It also applies to audit of historical financial information.
ASA 701 ties the responsibility to auditors to communicate key audit matters in the auditor’s report. The goal of

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