With the expansion of globalization, the economic connection among countries is tighter and tighter. The existence of different local accounting standards becomes an obstacle in international financial area. Incompatible financial data, unacceptable game rules to regulate the behavior of multinational companies and indefinite financial performance in the eye of international investors are strong evidences. As a result of these problems, harmonization of the international accounting standards will not be a dream any more. In 1973, Canada, Japan, Australia, France, Germany, UK, Mexico, Ireland, the Netherlands and the US created the International Accounting Standards Committee (IASC) for the purpose of developing international accounting standards (Payne & Ranagan, 2008, p.15). International Accounting Standard Board was established by the IASC in 2001, in order to create the best accounting standards to be implemented by all countries in the world (Fajardo, 2007, p.59). Every country is trying to make as much effort as they can in this global issue. However whether this global economic bridge can be built up smoothly and quickly is an issue which should be considered, because of the adoption of International Accounting Standards is not compulsory. Different interests and different purpose of different countries will influence the harmonization process of International Accounting Standards. In this essay, I am going to prove that the International Accounting Standards will be adopted globally one day. Moreover, I will analyze the bad effects that the accounting standards harmonization incurs, the inherent disadvantages of this movement, the difficulty in practice and even the thoughts of different countries behind this global issue. Is every game player ready for this radical change that will govern their financial world? Does every game player push the achievement of the course on one hand and set the obstacles to slow down the process on the other hand? Following my analysis, we will find the answer soon.
2 Globalization of International Accounting Standards can be achieved The development of international trade, which includes a large amount of goods and services transaction, is on its fast track. Since 1950, the beginning of postwar recovery, the international average annual growth has been up to 3.5%, while the value of trade in real terms has increased 6.5% per year (Pennar, 1993, p.60). This rapid growth stimulates the interactions among countries in the world. As a result, many multi-national corporations are established and expanding their market in different countries. The globalization of accounting standards is necessary if the world wants to allocate the source freely and efficiently. This trend is encouraged and pushed forwards by corporations, investors and national regulatory bodies.
2.1 Corporations’ need for universal accounting standards
The cross-boarder corporations have their business in different kinds of countries with a variety of cultures, legal systems, levels of inflations, degrees of openness of capital markets and political and economic ties with other nations (Spiceland et al, 2007). The huge differences in these areas will lead to big differences in the rule of accounting. Multinational corporations experience difficulties in meeting different kinds of requirements and rules to prepare the financial statements that are accepted by the countries they are trading with and to make sure the financial statements they prepared are useful in decision making. This is a very costly, time-consuming and resources wasted process (Fajardo, 2007, p.57). However, without complying with the accounting standards of different countries, corporation is not allowed to enter into the particular market and raise enough capital for its further development. With the purpose of profit pursuance, multinational corporations are more than happy to support the convergence of International Accounting...
References: Callao, S., Jarne, J. I., and Lainez, J. A. (2007). Adoption of IFRS in Spain: Effect on the comparability and relevance of financial reporting. Journal of International Accounting, Auditing & Taxation, 16. 148-178
Deloitte Touche Tohmatsu
Fajardo, C. L. (2007). The Move towards Convergence of Accounting Standards World Wide. Journal of American Academy of Business, Cambridge, 12(1). 57-62
Jacob, R. A., and Madu, C. N. (2004). Are We Approaching a Universal Accounting Language in Five Years?. The Journal of Futures Studies, Strategic Thinking and Policy, 6(6). 356-363
Misawa, M. (2005). The Japanese Issues and Perspective on the Convergence of International Accounting Standards. Northwestern Journal of International Law & Business, 25. 711-745
Payne, W. M. and Ranagan, J. E. (2008). To Converge or Not to Converge? A Question for Modern-day Standards-setters. Journal of Government Financial Management, 57(1). 14-20
Spiceland, J., Sepe, J. and L. Tomassini. (2007). Intermediate Accounting. 4th Ed. McGraw-Hill, Irwin
Please join StudyMode to read the full document