Discuss Critically the Need for International Accounting Harmonization and Assess the Success of the Attempts at International Harmonization and Standardization That Have Been Made Up to the Present Time
Discuss critically the need for international accounting harmonization and assess the success of the attempts at international harmonization and standardization that have been made up to the present time
For decades, entities across the world have been using a range of different accounting standards derived from various accounting models. Weber (1992) states that there have historically been four accounting standards models from different areas of the globe: the United Kingdom, Continental Europe, the United States and Latin America. These variations in standards create a number of issues for users of accounts, including those preparing, consolidating, auditing and interpreting. For example, an investor needs to be able to understand and compare financial statements in order to gain confidence to buy shares in a business. It is believed that harmonization of accounting standards can eliminate these issues by “increasing the compatibility of accounting practices by setting bounds to their degree of variation” (Nobes and Parker, 2008, p75). Organisations such as the International Accounting Standards Committee (IASC) have formed with this objective in mind, but their success has been limited.
It is claimed by a number of sources that international accounting harmonization will bring a number of benefits to stakeholders. Roberts, Weetman and Gordon (2008) claim that harmonization would eliminate dual reporting costs for multi-national companies. Regulators of a foreign stock exchange may require statements to be adjusted in order to match the local standards or at least produce a reconciliation statement highlighting the variations in standards. Harmonization would remove this problem and ensure all statements are valid worldwide. However, less developed countries will predictably have less influence on the standards that are put into place. The principles may not be appropriate for these nations, especially if they have a developing economy or no capital market
For decades, entities across the world have been using a range of different accounting standards derived from various accounting models. Weber (1992) states that there have historically been four accounting standards models from different areas of the globe: the United Kingdom, Continental Europe, the United States and Latin America. These variations in standards create a number of issues for users of accounts, including those preparing, consolidating, auditing and interpreting. For example, an investor needs to be able to understand and compare financial statements in order to gain confidence to buy shares in a business. It is believed that harmonization of accounting standards can eliminate these issues by “increasing the compatibility of accounting practices by setting bounds to their degree of variation” (Nobes and Parker, 2008, p75). Organisations such as the International Accounting Standards Committee (IASC) have formed with this objective in mind, but their success has been limited.
It is claimed by a number of sources that international accounting harmonization will bring a number of benefits to stakeholders. Roberts, Weetman and Gordon (2008) claim that harmonization would eliminate dual reporting costs for multi-national companies. Regulators of a foreign stock exchange may require statements to be adjusted in order to match the local standards or at least produce a reconciliation statement highlighting the variations in standards. Harmonization would remove this problem and ensure all statements are valid worldwide. However, less developed countries will predictably have less influence on the standards that are put into place. The principles may not be appropriate for these nations, especially if they have a developing economy or no capital market
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