Advantages And Barriers To Harmonization Of International Accounting Standards – Essay

The development of international trade and capital flows that has occurred over the old two decennaries has increased the desire to harmonize accounting criterions across the Earth. The entreaty of international accounting harmonization has been extensively discussed and in this college essay we will shine the light on it. Numerous faculty members Ali. J M (2005), Adhikari and Tondkar (1992), Saudagaran (1997) argue that following International Financial Reporing Standards ( IFRS ) would convey great benefits to society, such as comparison of statements between states, patterned advance and development of capital markets and communicating and relationships between transnational companies. Besides, it has been debated by some Blake (1990), Nair and Frank (1981), Nobes and Parker (2004), Arpan and Radebaugh (1985), Deegan (2005) that with the wages gained from harmonization come some barriers, economic effects, patriotism and the deficiency of professional organic structures.

One of the most valuable characteristics that would come from harmonization would be the comparison of international fiscal information. Presently there is great misinterpretations about the foreign fiscal statements, bettering comparison would take this issue and it would besides extinguish one of the most important barriers to the flow of international investing. Global harmonization would salvage clip and money that is soon being spent on unifying differing fiscal information when more than one set of studies is required to follow with the different national Torahs or pattern Blake (1990). It will besides better the inclination for accounting criterions throughout the universe to be raised to the highest possible degree and to be consistent with local economic, legal and societal conditions. Having one international accounting linguistic communication is good for the worldwide comparing of statements and comprehensibility.

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Unifying accounting criterions would besides assist the development and enlargement of capital markets. Ali. J M (2005). In the last two decades, the growing in capital markets has been really dramatic. This addition has brought about a figure of issues. One concern is the discrepancy in accounting revelation criterions and patterns worldwide, which is referring for an assortment of different groups Adhikari and Tondkar (1992). IFRS would let foreign investors, fiscal analysts and foreign loaners to hold a greater apprehension of the fiscal statements of different international companies and they would be able to compare the investing chances, which will assist them to do the right investing determination. The group that would profit the most out of the harmonization of accounting criterions would be the Multi-national companies (MNC’s) as the communicating of fiscal information within the groups would go easier. With the harmonization of coverage criterions, it would be easier for MNC’s to carry through the revelation demand for stock exchanges around the universe. Many of the new foreign investing by MNCs is taking topographic point in developing states and at the same clip that there has been a crisp diminution in new investing in industrialized states Saudagaran (1997).

This means that due to the singular differences between fiscal describing MNCs have to make legion amalgamate fiscal statements in respects to the ordinances for each separate state. To make this it takes a great trade of clip and resources, this job would be eliminated by the acceptance of IFRS. A topic of argument is whether the accounting regulators take the issue of economic effects into history when make up one’s minding on whether to follow the IFRS. Many companies do non take on the alteration as conveying alteration into their accounting criterions will raise costs. This opposition may happen with the harmonization of accounting criterions Blake (1990), Nair and Frank (1981) stated, “National accounting group would buttonhole in this manner in order to minimize the costs associated with altering to a new criterion, or to avoid stigma of disobedience if it chooses alternatively to disregard the new international standard” . It is besides discussed that comptrollers may lose their credibleness if they are to reply to the economic effects force per unit areas whilst it is besides discussed that it is a critical affair if accounting ordinances are to command general support.

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Blake (1990) provides grounds of how accounting criterion compositors were influenced by economic effect issues in different states. Economic effect issues may do diverseness of accounting patterns because they are a consequence of the national cultural and regulative model. One of the barriers for harmonization may be patriotism. Nobes and Parker (2004) advocator that patriotism will do a refusal to accept accounting criterions that is to be developed by other states. Each state follows the belief that they have in topographic point the better system and that other states accounting criterions are of an inferior nature Arpan and Radebaugh (1985). Some states that have mistakes and insufficiencies within their criterions will take non-to follow the IFRSs as they can profit from these inefficies. An illustration is given by Carlson (1997), who acknowledges that authorities may see efforts by the IASC to change national accounting regulations as violations upon national sovereignty. Developing states and those, which have been settlements of imperial powers are peculiarly sensitive to invasions. Wallace (1990) identifies three grounds in favor of endurance of the IASC/IASB. including the increasing internationalization of concern and finance, the composite nature of its criterions. and the absence of challenger in the development of planetary accounting criterions. Another political obstruction that may originate, which is discussed by Nobes and Parker (2004) is that there are several states that are non in the presence of strong adept accounting organic structures.

The IASB wanted to work through national accounting organic structures but this is an issue as they are non all states have effectual organic structures. The IOSCO came away with the suggestion of the acceptance of IASB criterions as an acceptable footing for the readying of fiscal statements to member exchanges throughout the universe. This means that a company looking for naming in another state does non hold to set its studies to carry through the specific national demands if the studies are already in understanding with IASB criterions Deegan (2005). The demand for the harmonization of IFRS is decidedly apparent. As discussed earlier there are a great figure of benefits that would originate from this patterned advance. To supply a professional, developing and strong accounting environment it would be necessary. Despite the benefits, there are a figure of barriers and hurdling that need to be overcome in order to convey about the harmonization of international accounting criterions. In order to guarantee the unvarying application of accounting criterions across cultural and political boundaries IASB needs to guarantee that there are strong audit patterns and just values applied in order to convey about the unity of the criterions.

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