International Accounting Harmonization and Assess

For decades, entities across the world fork everyplace been using a range of distinguishable account statement standards derived from various write up models. Weber (1992) states that there have historic tot tout ensembleyy been four business relationship system standards models from different beas of the globe the coupled 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 comp atomic number 18 financial statements in order to seduce confidence to corrupt shares in a business.It is believed that harmonization of accounting standards foundation eliminate these issues by increasing the compatibility of accounting practices by setting bound to their degree of variation (Nobes and Parker, 2008, p75). Organisations such as the International story Standard s military commission (IASC) have formed with this objective in mind, besides their success has been limited. It is claimed by a number of sources that international accounting harmonization will charter a number of benefits to stakeholders. Roberts, Weetman and Gordon (2008) claim that harmonization would eliminate dual reportage be for multi-national companies.Regulators of a foreign stock ex flip may entreat statements to be adjusted in order to counterbalance the local standards or at least rear a reconciliation statement foreground the variations in standards. Harmonization would remove this problem and ensure all statements are valid worldwide. However, less(prenominal) dampened countries will predictably have less influence on the standards that are put into place. The principles may non be appropriate for these nations, especially if they have a exploitation economy or no capital market transactions (Larson and Kenney, 1995).The lack of worldwide accounting harmo nization can overly hamper investors. Miles and Nobes (1998) state that whilst standards are varied, headmaster fund managers find it delicate to understand statements prepared in plastered countries. Investors very much avoid trading in these companies, potentially leading to them lacking a profit making opportunity. Harmonization of standards would reduce the chances of misunderstanding, thus decrease the likelihood of poor decisions being made (Roberts et al, 2008). Although comparability may be improved, other features of a business may be hidden, such as the differences in business activity.The original changeover to the new standards may likewise cause confusion for newly adopting nations, especially if the standards are viewed to be change magnitude the accuracy of the comp all accounts (Barth, Clinch and Shibano, 1999). In each rude of the world, accounting standards need to be set either under law or by an independent body. This means that various costs are genera ted in order to implement and monitor standards. If certain countries are implementing practices that are homogeneous or even the same as another country, it makes diminished mother wit for both nations to be incurring these costs (Roberts et al, 2008).Although global standards would minimise these implementing tie in costs, they are not relevant for companies only operating in angiotensin-converting enzyme country. There is also a danger that, if one body monopolises standards, the look of practices will reduce because of a lack of competition from other accounting bodies (Sunder, 2002). It is claimed that international accounting harmonization would enhance the global economy by providing a train playing field (Weber, 1992, p1). Those regulating and auditing accounts will all gain access to the same information, enabling a smoother military rank process.With let on free trade, international standards would al diminished trade restraint systems to be exact, simplification t he risks for those involved in trade (Weber, 1992). However, Goaltz (1991) argues that such benefits may not be achieved. A strong global market already exists and has developed without accord international standards. Elimination of capital controls and improved communications have step-up the money available to businesses and the worldwide market is likely to continue to stick in size. other group that would benefit from harmonization would be the task authorities.Profit measurement often varies between countries, making it very difficult for tax professionals to measure income and calculate tax. However, the tax authorities have themselves have reduced harmonization by resigning last in first out (LIFO) for the purposes of tax in the US, which is not allowed in other countries such as the UK. Deferred tax has also been allowed in Continental Europe, which is not the case in other nations (Nobes and Parker, 2008). The IASC was formed in 1973 by accountancy bodies from all ove r the world.The committees objective is to work generally for the improvement and harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements ( murphy, 2000, p 472). The body has since restructured and became the International Accounting Standards Board (IASB) in 2000. The standards set by the board have gone(p) some way to achieving the desired objective, but there have been a number of barriers that have prevented true harmonization (Street and Shaughnessy, 1998).Accounting standards need to match the environment they are employed in and this is difficult when each country is unique in areas such as education, law and economy. With these variables as they are, it is knockout to see how perfect unanimity can be achieved. Between 1973 and 1988, the IASC utilise a total of 26 generic standards. These standards were flexible and prescribed little in the way of disclosures. Garrido, Leon and Zorio (2002) report that in 198 8 the IASC became concerned about the low aim of comparability the standards had produced.This resulted in a large proportion of options for discussion being removed, and standards also highlighted the preferred treatment in order to increase uniformity. In 1995, the IASC made an agreement with the International Organization of Securities Commission (IOSCO) to produce a core set of standards by 1999 in exchange for endorsement. This resulted in more options for treatment being removed and an increase in the level of disclosure. Garrido et al (2002) state that the standards produced in 1999 has achieved a good harmonization level collectible to the increased comparability of financial statements and the reduction of alternative treatments.Murphy (2000) conducted research into whether adopting of international accounting standards (IASs) had increased harmony between Swiss companies and companies from the UK, USA and Japan. The assessed practices were depreciation, inventory, finan cial statement cost base of operations and consolidation. The study showed that harmony had increased between countries between 1988 and 1995. Companies from Switzerland, the US and the UK adopting IASs all used straight-line depreciation, whilst the Nipponese mostly used the mixed or accelerated method.The IAS for inventory practices was even flexible allowing for many methods and it was so difficult to attribute the adoption of IASs to any harmony that had occurred. This was also the case with financial statement cost basis where historical costing or price level costing could let off be used. However, harmonization increased for consolidation, with the majority of companies from all four countries consolidating all of their companies after adopting IASs. It is true that company comparability increased during this period but results do not clearly show that the changes were due to the adoption of IASs.Das, Shil and Pramanik (2009) advert that one of the biggest reasons for o nly limited adoption of IASs is the fact that the US has shown hesitance in applying the standards. The US has the biggest market and was an important figure in forming the G4 nations. It accordingly sets an example to other members and may influence their decisions in whether to adopt IASs. It is also very difficult to get every single country to buy into the standards of the IASB as they operate under various legal, economic, social and cultural systems, often harbouring different accounting philosophies.Certain countries may not recognise the reasons to change the objectives of their accounting standards to comply with those of the IASB. Larson and Street (2004) also state that there are translation issues for some nations. Despite the standards being made available in the majority of languages, these are not always up to date. It is difficult for nations not receiving up to date translations as they have little chance to develop experience using the standards. In 2004, Hungary was using practices developed in 1994.Another body concerned with international accounting harmonization is the International alliance of Accountants (IFAC), which is a group of accounting bodies from various countries representing professional accountants (Saudagaran, 2009). The body has released a code of conduct for the practices of professional accountants. However, despite Clements, Neill and Stovall (2010) suggesting that the code has been a success, or so 50% of member organisations have not employed the code. This is mainly due to cultural differences such as the level of individualism present indoors a nation.Nations such as the USA or Canada concentrate on the impact of adopting practices on themselves directly and not on the world as a whole. As a result these countries are likely to be more reluctant in adopting the code (Clements et al, 2010). It is clear that international accounting harmonization would bring about a number of benefits for stakeholders. It would re duce costs for companies, especially those who have invested in a foreign subsidiary. It would also allow for investors to make easier decisions and save national governments money.However, there are some drawbacks for developing countries where standards may not be appropriate. Investors and staff may be anomic by the change in practices and the overall quality of standards may reduce. It is therefore debateable whether the IASBs continued efforts to harmonize standards are worth it. They and other bodies involved with harmonization have undoubtedly made successful strides since 1973, but some barriers to arrest standardization look potentially immovable. It is very difficult to alter a countrys culture, especially in developing nations where the drawbacks to harmonization may outweigh the benefits.