The Inevitability of International Accounting Harmonization
Introduction
Along with the drastic development of world trade and the increase in international capital flow, the economy of the world is now in the process of globalization. Accounting, as ‘a major tool of business communication’ (Walton et al., 2003), plays a crucial role in promoting the growth of the global economy. Therefore, a relatively harmonious and comparable accounting system which could be accepted and understood by all the countries is required for several reasons. Firstly, accounting diversity represents an obstacle to the understanding of accounting information for both international companies and international investors (Walton et al., 2003). Moreover, international accounting differences increase the cost of accounting systems in international companies for trans-border transactions as well as cooperation. A third problem related to accounting diversity is the lack of high-quality accounting standards in some countries. Although there are many obstacles in the process of the international accounting harmonization, such as nationalism, objective diversity and high cost, the argument for supporting harmonization illustrate that harmonization is beneficial for current economic environment. Consequently, international accounting harmonization is inevitable and necessary. This research will first define the international accounting harmonization. Secondly, it will illustrate the reasons for harmonization. It will also bring about the obstacles facing the trend of harmonization. Finally, it will look at the arguments of supporting international accounting harmonization as inevitable and necessary.
Definition
There are two main terms used in the international accounting context in the literature and previous research: ‘harmonization’ and ‘standardization’. Harmonization means the attempt to make differences compatible or coordinated, while standardization aims to make them standard or uniform (Lawrence, 1996). According to Nobes & Parker (2012),
Along with the drastic development of world trade and the increase in international capital flow, the economy of the world is now in the process of globalization. Accounting, as ‘a major tool of business communication’ (Walton et al., 2003), plays a crucial role in promoting the growth of the global economy. Therefore, a relatively harmonious and comparable accounting system which could be accepted and understood by all the countries is required for several reasons. Firstly, accounting diversity represents an obstacle to the understanding of accounting information for both international companies and international investors (Walton et al., 2003). Moreover, international accounting differences increase the cost of accounting systems in international companies for trans-border transactions as well as cooperation. A third problem related to accounting diversity is the lack of high-quality accounting standards in some countries. Although there are many obstacles in the process of the international accounting harmonization, such as nationalism, objective diversity and high cost, the argument for supporting harmonization illustrate that harmonization is beneficial for current economic environment. Consequently, international accounting harmonization is inevitable and necessary. This research will first define the international accounting harmonization. Secondly, it will illustrate the reasons for harmonization. It will also bring about the obstacles facing the trend of harmonization. Finally, it will look at the arguments of supporting international accounting harmonization as inevitable and necessary.
Definition
There are two main terms used in the international accounting context in the literature and previous research: ‘harmonization’ and ‘standardization’. Harmonization means the attempt to make differences compatible or coordinated, while standardization aims to make them standard or uniform (Lawrence, 1996). According to Nobes & Parker (2012),
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