Challenges of Harmonization of Accounting System

QUESTION: Discuss the challenges of harmonization of accounting system.
Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements. The Generally Accepted Accounting Principles is comprised of a large group of individual accounting standards. Accounting Standards in other words can be stated as rules which govern the preparation of financial statements. They are the generally accepted accounting principles (GAAP). Where by accounting practices are the actual used practices by accountants. They are influenced by Accounting Standards, which govern the preparation of financial reports.

Harmonization of accounting standards” can be defined as the continuous process of ensuring that the Generally Accepted Accounting Principles (GAAP) are formulated, aligned and updated to international best practices (GAAPs in other countries) with suitable modifications and fine tuning considering the domestic conditions. Harmonization is the process of increasing compatibility of accounting practices by setting bounds on their degree of variation. Harmonization can be defined as “the process of bringing international Accounting Standards into some sort of agreement so that the financial statements from different countries are prepared according to a common set of principles of measurement and disclosure” (Haskins et al. 1996:29). According to Wolk et al. described harmonization of Accounting Standards as “the co-ordination or similarity among the various sets of national Accounting Standards and methods and formats of financial reporting”. (Kleekämper et al., 2002) Kleekämperet al. explain, that the aim of the international harmonization process of Accounting Standards is to reduce or overcome differences world-wide, in order to reach a better international Comparability of financial statements. International accounting harmonization can be defined as “the process

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