Positive aspects and barriers of harmonizing

Essay Topic: Accounting Standards,

Paper type: Finance,

Words: 1096 | Published: 03.18.20 | Views: 168 | Download now

The development in international trade and capital flows which includes occurred above the previous 20 years has increased the need to harmonise accounting standards worldwide. The appeal of international accounting harmonization have been extensively reviewed. Numerous academics Ali, L M (2005), Adhikari and Tondkar (1992), Saudagaran (1997) argue that using International Monetary Reporing Requirements (IFRS) will bring other great features to world, such as assessment of transactions between countries, progression and development of capital markets and communication and relationships between multinational corporations. It has recently been debated by simply some Blake (199O), Nair and Outspoken (1981), Nobes and Parker (2004 ), Arpan and Radebaugh (1985), Deegan (2005) that together with the rewards obtained from harmonization come a few barriers; economical consequences, nationalism and the insufficient professional physiques.

One of the valuable features that would are derived from harmonization could be the comparability of international economic information. Presently there is great misunderstandings about the foreign monetary statements, increasing comparability will remove this issue and it could also eradicate one of the most significant barriers for the flow of international expenditure.

Global harmonization could save money and time that is at this time being spent on uniting different financial data when several set of reports is required to conform to the different nationwide laws or practice Blake (1990). It will likewise improve the trend for accounting standards throughout the world to be increased to the maximum level and also to be according to local economic, legal and social conditions. Having one international accounting language is helpful for the worldwide a comparison of statements and understandability.

Unifying accounting criteria would likewise help the development and growth of capital markets. Ali, J Meters (2005). In the last two decades the expansion in capital markets has become very remarkable. This maximize has brought of a number of problems. One concern is the difference in accounting disclosure requirements and practices worldwide, which can be concerning to get a variety of distinct groups Adhikari and Tondkar (1992). IFRS would allow foreign investors, monetary analysts and foreign loan providers to have a greaterunderstanding of the economic statements of different international companies and they would be able to compare the investment opportunities which will help these to make the right investment decision. The group that would benefit the most out of the harmonisation of accounting standards would be the Multi-national corporations (MNC’s) because the conversation of financial data within the groupings would turn into easier. Together with the harmonization of reporting criteria it would be easier for MNC’s to satisfy the disclosure requirement for stock exchanges all over the world. Many of the new foreign investment by MNCs is occurring in developing countries as well as that there is a sharp drop in fresh investments in industrialized nations Saudagaran (1997).

Which means that due to the amazing differences between financial reporting MNCs have to create quite a few consolidated economic statements with regards to the regulations for every separate nation. To do this it will take a great deal of as well as resources, this problem would be eliminated by the adoption of IFRS. A subject of debate is whether the accounting regulators take those issue of economic outcomes into account when ever deciding on if to adopt the IFRS. Many companies do not carry out the modify as getting change into their accounting requirements will raise costs. This resistance may well occur while using harmonization of accounting standards Blake (1990). Nair and Frank (1981) stated “national accounting group would reception in this fashion in order to decrease the costs linked to changing to a new standard, or to avoid stigma of non-compliance if it chooses instead to disregard the new intercontinental standard. Additionally it is discussed that accountants may well lose all their credibility if they are to answer to the economic effects pressures while it is also discussed that it is a vital matter if accounting polices are to command word general support.

Blake (1990) provides evidence of how accounting standard setters were affected by economical consequence issues in different countries. Economic result issues might cause diversity of accounting practices because they are a direct result the countrywide cultural and regulatory framework. One of the obstacles for harmonization may be nationalism. Nobes and Parker (2004) advocate that nationalism may cause a refusal to accept accounting standards that is to be developed by other countries. Each nation follows the belief that they have in place the better system and this other countries accountingstandards will be of an second-rate nature Arpan and Radebaugh (1985). A few countries which have faults and inadequacies in their standards can chose to never adopt the IFRSs because they can benefit from these types of ineffiecies. An example is given by Carlson (1997) who acknowledges that government authorities may look at attempts by the IASC to alter national accounting rules while infringements upon national sovereignty. Developing nations around the world and those which have been colonies of imperial capabilities are particularly very sensitive to infections. Wallace (1990) identifies three reasons in favour of survival in the IASC/IASB, including the increasing internationalization of organization and financing, the composite nature of its standards, and the a shortage of rival in the development of global accounting standards. Another political obstacle that may arise, which can be discussed by Nobes and Parker (2004) is that there are lots of countries that are not in the occurrence of strong practiced accounting bodies.

The IASB wanted to work through countrywide accountancy body but this can be an issue because they are not all countries have powerful bodies. The IOSCO emerged forth while using suggestion in the adoption of IASB requirements as a satisfactory basis for the prep of financial assertions to affiliate exchanges all over the world. This means that an organization looking for list in another country does not have to adapt its reports to satisfy the specific countrywide requirements in case the reports happen to be in contract with IASB standards Deegan (2005). The need for the harmonization of IFRS is definitely apparent. As mentioned earlier a few great number of benefits that would occur from this advancement. To provide a professional, developing and strong accounting environment it would be necessary. In spite of the benefits there are a variety of obstacles and obstacles that need to be get over in order to bring about the harmonization of international accounting criteria. In order to guarantee the uniform application of accounting standards around cultural and political boundaries IASB needs to ensure that there are strong audit practices and fair values applied to be able to bring about the integrity in the standards.

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