Uniformity of Accounting Standard and Conceptual Framework
Harmonization of the accounting standard and conceptual framework is emerging as a requirement for of the international community. As business cross national boundaries so the transecting parties need uniformity in the financial reporting for better understanding of the business conditions. The process of harmonization gets accelerated by the initiative of the two major standard setting body of the world IASB and FASB. Although the two authoritative bodies try to uniform the accounting standard but the major concern arises here is the biasness of the influencing nations. In the assignment, pros of the harmonization process is discussed which is essential for international business community. The process is also disturbed by taking into account no consideration of the society and judgment of the professionals. In the assignment some recommendations are made for accelerating the harmonization process. Contents
Economics and politics are the two major elements that shape the accounting standard of a nation. As each and every nation varies in their economic condition, customized accounting standard gets its appeal. Nowadays business is not confined in the national boundaries. With the integration of the worldwide market and the economic forces the process harmonizing the accounting standard has become an emerging issue. In the process independent rather than governmental organization is most appropriate. If we account for the advantages and disadvantages of the harmonization process then in the pros side of the ledger high quality standard of the FASB is the achievement and in the cons side I will posted the biasness of the standard setters. The process reduces the cost of the international community because adding an additional member in the process tends to zero marginal cost of standard setters. Why uniformity in the accounting standard and conceptual framework? With the widespread integration of the markets and policies all over the world, nowadays it becomes inevitable for the financial institutions all over the world to follow a uniform standard for financial reporting. Following the high quality accounting standard tends to a higher standard financial reporting. The pros for informing standard all over the world are as follows: (Ball, ,2005) Maintaining uniformity in financial data presentation: standards are set to guide the contracts of the financial institutions. In the case, if the financial reporting of the entities is different, it causes problem for both the contracting parties in the maintenance of the conditions of the contracts. For example- Company X lends money from Bank Y on the condition that landed amount must not exceed 60% of the total tangible. In the situation valuation techniques of the firms are different then it affects the contract adversely. So following a uniform standard for valuation of tangible asset is a solution of the problem Uniform presentation of financial performance: investors make investment decision based on the financial performance of any firm. In the situation, if the firms follow different standard to represent profitability then it becomes misleading for the investors. Following a uniform standard for reporting can resolve the problem (Lämmle, ,2005) Adopting uniformity in the accounting standard offers the society the following three benefits: 1. Uniform accounting standard offers the benefit of economics of scale. Standard once are set, the cost of adding additions user is zero 2. The auditors tasks get easy because all the financial institutions follow uniform policy and procedure for reporting 3. Comparability can be made which reduce the cost of the firms contracting each other Extended cross border transactions: nowadays cross border transaction has been increased. Information about the foreign products and the financial information of the business are now...
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