Harmonization of accounting standards” can be defined as the continuous process of ensuring that the Generally Accepted Accounting Principles (GAAP) are formulated, aligned and updated to international best practices (GAAPs in other countries) with suitable modifications and fine tuning considering the domestic conditions. Harmonization is the process of increasing compatibility of accounting practices by setting bounds on their degree of variation. Harmonization can be defined as “the process of bringing international Accounting Standards into some sort of agreement so that the financial statements from different countries are prepared according to a common set of principles of measurement and disclosure” (Haskins et al. 1996:29). According to Wolk et al. described harmonization of Accounting Standards as “the co-ordination or similarity among the various sets of national Accounting Standards and methods and formats of financial reporting”. (Kleekämper et al., 2002) Kleekämperet al. explain, that the aim of the international harmonization process of Accounting Standards is to reduce or overcome differences world-wide, in order to reach a better international Comparability of financial statements. International accounting harmonization can be defined as “the process of bringing international Accounting Standards into some sort of agreement so that the financial statements from different countries are prepared according to a common set of principles of measurement and disclosure” (Haskins et al. 1996:29).
This harmonization is needed due to the globalization of businesses and services and increase in cross-border investments and borrowings and academicians, regulators and governments have been constantly striving to harmonize the local/domestic Accounting Standards(AS), also referred to as Generally Accepted Accounting Principles (GAAP), with the International Accounting Standards (IAS) issued by the UK based International Accounting Standards Board (IASB) (formerly the International Accounting Standards Committee-IASC).The IASB has been trying to harmonize international accounting principles since 1973. Further, the IASB and the International Organization of Securities Commissions (IOSCO) have been jointly working on harmonization since July 1995, and in May 2000 the IOSCO finished its review of the IAS and recommended usage of certain IAS, supplemented with reconciliation, disclosure and interpretations. Some benefits of harmonization of accounting practices is as follows
* It ensures reliable and high quality financial reporting and disclosures.
* In certain cases, it can prove to be crucial to the economic and financial development of a country * It enables a systematic review and evaluation of the performance of a multinational company having subsidiaries and associates in various countries wherein each country has its own set of GAAP * It makes the comparison of the performance of a company against its domestic and international peers easier and more meaningful * It is a precursor for accessing international capital markets which can, in turn, reduce the capital cost and consequently, improve the performance of a company * Multinational companies, the multinational companies benefit from...