Accounting Theory -Harmonization of Standards

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Harmonization of International Accounting Standards

Contents

A. Introduction & Objective.……………………………………………………………….3

B. Why Harmonization of international accounting standards required……………..4

C. Factors influencing any Country’s Accounting Standards…………………………..6

D. Role of International Accounting Standard Board (IASB)……………….…………..8

E. Moving towards Harmonized International Accounting Standard………………….9

F. Obstacles and Benefits of the harmonization of International Accounting………..10

G. Conclusion………………………………………………………………………12

H. Recommendation……………………………………………………………….13

I. Research Reference………………………………………………………………………....14

A. Introduction & Objective

Objective of this research paper is to discuss the topics that can influence any country’s Accounting Standards. The need for harmonization of international accounting standard will be covered as part of this discussion. As there has been a tremendous growth in the market place with the existing accounting practices, this leads us to question why do we need harmonization of International accounting standards, what are its advantages and what are the barriers that hinder harmonization? Although accounting may be the "language of business," a common language has never been necessary -- at least as long as the world economy consisted of a set of more or less distinct national economies.

B. Why Harmonization of international accounting standards required

The greatest benefit that would flow from harmonization would be the comparability of international financial information. Such comparability would eliminate the current misunderstandings about the reliability of foreign financial statements and would remove one of the most important impediments to the flow of international investment. Harmonization would save time and money that is currently spent to consolidate divergent financial information when more than one set of reports is required to comply with the different national laws or practice. It will also improve the tendency for accounting standards throughout the world to be raised to the highest possible level and to be consistent with local economic, legal and social conditions. A harmonization of international accounting standards is necessary for a full realization of the benefits offered by a world economy. Among the steps necessary for harmonization to proceed would be the adoption of a standard reporting requirement for national securities regulators. Also, regional accounting associations have been organized in other parts of the world to promote standardization. Developing countries would be spared the cost of instituting their own accounting standards if they would adapt the proposed international accounting standards.

Investors
Investors interested in investing in foreign companies may have a difficult time in making comparisons across potential investments because of differences in accounting rules across countries.  The translation of financial statements from one currency to another, and from one set of GAAP to another, is much more expensive and time-consuming. Moreover, such translation often results in data that has little meaning, because in any country, GAAP developed to meet the particular needs of that country. For example, if statements were originally prepared to comply with governmental regulations in a country such as Japan, income and assets may be understated compared to similar companies in Canada or the United States.

Developing Countries
Many developing countries are short of resource to develop a comprehensive accounting principle, adopting IASB is a shortcut to be involved in the international economy and access to international financing sources. By using the international accounting language, the information provided is comparable and transparent, investors and multination company will be likely to enter the market and benefit the developing country....
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