INTERNATIONAL HARMONIZATION OF ACCOUNTING STANDARDS 1
InternationalHarmonization of Accounting Standards
Internationalharmonization is the process whereby countries globally come up withpolicies and laws and regulate them in order to ensure a just, fairand effective environment to carry out its business activities. TheInternational Accounting Standards Board (IASB) sets the standardsfor financial statements. The objectives of IASB include
To develop the public interest and set high quality standards in financial statements
To promote these standards
Inorder to have a good financial statement globally, the accountingpolicy must be standardized and regulated among nations. Howeverthere are various issues that affect the accounting practice theyinclude
Cultureis the practice that has been agreed and accepted by a particularsociety as their way of life. Accounting involves practices such asfinding misstatements and preparing disclosure in financialstatements. Disclosures can be influenced by the culture in the waythey are designed. Cultures of strong uncertainty normally discloselittle information to the public and greater percentage of thatinformation to the private sectors so that they are able to achievemore favor and interest in them. Individual firms tend to be morepublic with their business transaction because they don’t contain aclosely held company.
Aculture that shows a great power distance tends to be unease toprovide private information with the rest hence there disclosure arenot easy to be portrayed. Nevertheless hose of less power distantfirms are able and very encouraging to show their information to thepublic. A major dispute in the accounting harmonization around theworld is because of national culture. A research reveals that accountpractices develop within a nation in order to achieve their goals(Nobes, 1996). China practices its accounting activities differently from otherwestern cultures because the government greatly influences andcontrols its accounting hence financial statements tend to favor thegovernment other than needs of an investor.
Internationalharmonization enables countries globally to accept the standards inorder to remove unnecessary costs which are barriers to trade.Countries that have adopted IFRS use less with income in management.They also experience good accounting quality. A report carried outshows that there is the provision of capital markets since theyprovide easy access hence reducing the costs of capital. It’s verydifficult to invest in a country that doesn’t have an access toIFRS because investors want high returns from such firms hence thecost of debt is very high for firms that don’t have an IFRS report.
Aneducational and training program should be developed in order forinternational harmonization to be possible. This will enableaccountants to acquire knowledge from them hence promoting goodcomparable financial systems. Also, seminars need to be introduced inorder to convince the business society on the benefits of IFRS.
Countriesaround the world have adopted different accounting methods. Somecountries have not accepted the use of IFRS such as the US, Mexicoand China. In USA they have rejected the use of IFRS because it wouldlead to low quality standards and have opted to use GAAP. This hasbrought an endless debate of what will happen if a superpower nationdoesn’t adapt this policy. Mexico itself, is greatly influenced byUSA investments hence they prefer using GAAP to IFRS in order to haveeasy access to the US market.
Smallcountries may suffer directly or indirectly when they cannot affordto adapt new accounting standards. Great super powers have widemarkets and may require less powered countries to reveal theirfinancial statements to them. Suppose a country hasn’t developedthe standards? Definitely a super power country will be reluctant toinvest in it
TheIFRS ensures that the financial statements prepared in all countriesare similar and compatible with each other. Language has been a majorbarrier in translation of the rules. The language used is Englishhence translating in different languages may lead to loss of meaningand therefore lead to misunderstandings.
Inconclusion international harmonization has brought desirable featuresand it can also be made possible. However, various strategies shouldbe put in place to ensure its developing and curb the problems thatmay be associated with it
Nobes,C. (1996). International harmonization of accounting.Cheltenham, UK: E. Elgar Pub.