International Accounting Harmonization and Assess

For decades, entities across the world support been using a range of contrasting invoice standards derived from various write up models. Weber (1992) states that there put sensation across historically been four accounting standards models from variant aras 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 of necessity to be able to netherstand and comp be fiscal contentions in order to micturate confidence to deal shares in a short letter.It is believed that harmonisation 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) mother formed with this objecti ve 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 describe comprises for multi-national companies.Regulators of a foreign stock exchange whitethorn 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, slight developed countries will predictably take less influence on the standards that are put into place. The principles may not be appropriate for these nations, especially if they have a growing economy or no crown market transactions (Larson and Kenney, 1995).The lack of worldwide accounting harmonization can overly stifle investors. Miles and Nobes (1998) state that whilst standards are varied, professional fund managers find it herculean to understand statements prepared in real countries. Investors often avoid trading in these companies, potentially leading to them missing a profit making opportunity. Harmonization of standards would disgrace the chances of misunderstanding, thus reducing 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 changeoer to the new standards may also cause confusion for newly adopting nations, especially if the standards are viewed to be decreasing the accuracy of the company accounts (Barth, Clinch and Shibano, 1999). In each country of the world, accounting standards lead to be set either under law or by an independent body. This means that various lives are generated in order to implement and monitor standards. If certain countries are implementing pra ctices that are convertible or even the same as another country, it makes little sense for both nations to be incur these costs (Roberts et al, 2008).Although world-wide standards would minimise these implementing related costs, they are not relevant for companies only operating in one country. There is also a danger that, if one body monopolises standards, the quality 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 level playing field (Weber, 1992, p1). Those regulating and auditing accounts will all gain access to the same information, enabling a smoother evaluation process.Without free concern, international standards would al pitiable trade restraint systems to be exact, reducing the risks for those composite 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 harmonized international standards. Elimination of capital controls and improved communications have increase the money available to businesses and the worldwide market is likely to insure to grow in size. Another group that would benefit from harmonization would be the revenue enhancement authorities.Profit quantity 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 allowing 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 over the world.The committees objective is to work generally for the improvement and harmonization of regulations, accounting s tandards, and procedures relating to the grantation 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 more or less 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 hard to fulfill how perfect harmony can be achieved. Between 1973 and 1988, the IASC implemented 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 1988 the IASC became concerned about the low level of comparability the standards had produced.This resulted in a large prop ortion of options for discourse being removed, and standards also highlighted the preferable treatment in order to increase uniformity. In 1995, the IASC made an agreement with the International Organization of Securities consignment (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 steady-going harmonization level due to the increased comparability of financial statements and the reduction of alternative treatments.Murphy (2000) conducted inquiry 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, financial statement cost basis and consolidation. The study showed that harmony had increased between countries between 19 88 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 still flexible allowing for many methods and it was because 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 still 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) suggest that one of the biggest reasons for only limited adoption of IASs is the fact that the US has shown reluctance in applying the standards. The US has the biggest marke t and was an primary(prenominal) figure in forming the G4 nations. It therefore 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 agnise 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 have got using the standards. In 2004, Hungary was using practices developed in 1994.Another body concerned with international accounting harmonization is the Internation al Federation 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, almost 50% of member organisations have not employed the code. This is mainly due to cultural differences such as the level of individualism present within 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 reduce costs for companies, especially those who have invested in a foreign subsidiary. It would also allow for investors to ma ke 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 confused 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 complete standardization impression potentially immovable. It is very difficult to alter a countrys culture, especially in developing nations where the drawbacks to harmonization may outweigh the benefits.