Harmonization of Accounting Standards

Question: Discuss about the Harmonization of Accounting Standards. Answer: Introduction: Significance of harmonization of different accounting standards is towards serving the global stakeholders of the business organizations as the direct result of global economy. The main rationale is lying on the concept of standardized accounting policy amongst the nations(Haldma, 2003). The significance is categorically divided into following features: To facilitate the transactions internationally with minimization of costs of exchange with provision of true and fair facts of accounting information. To ensure standardization of accounting information for the global economic policy makers(Das Pramanik, 2009). To improve information of global financial markets To ensure improvement of accountability of government. To help providing a global level playing field To make a standard platform for the accounting professionals globally in the forms of auditors and regulators in respect of the standardized form of accounting information to ensure standardized form for evaluation process. In case of absence of free trade, international accounting standards will fix tariff, quotas and other trade restraint instruments of the nations to make the system more perfect with involvement of lesser risk for the players engaged in trade. Ability of Stakeholders in the forms of managers and investors for making right decisions(Unc, 2013). Efficiency level of global resource management will be enhanced with right allocation. Present expansion of global capital markets with availability of global communication demands of providing useful information with comparison within the international borders.(Rivera,1989) With the above changed global scenario, the significance of harmonization of accounting standards are getting more importance day-by-day. The European Union Countries, a major stakeholder of international trades are more conscious about the importance of this convergence. Lately Australia and New Zealand is also realizing the emphasis and implementing Australian Accounting Standard which is in the process of convergence with International Accounting Standards with the implementation o0f International Financial Reporting Standards of IFRS as the common the platform to ensure treatment of different accounting information for the finalization of accounting report(Gulin et al., 2003). Promoter of harmonization of accounting with reason: The main promoters of harmonization of accounting are European Union members, with USA, Australia and Canada. The main reason for harmonization of accounting is lying on the fixation of common platform on which the international standard of accounting can be established. Emphasis is being given on the foundation of standardized format of accounting application with relation to different issues in which different countries are adopting different system of accounting which defies the common purpose of standardization of accounting. With the newly emerged concept of global economy, the stakeholders of the business organizations are spread over globally. The practice of common accounting standard will help them to understand the accounting information depicted through financial reporting. The role of IFRS is self explanatory regarding the reporting of financial information as endorsed by the four giants of audit practices globally in the forms of Deloitte, KPMG, Ernst and Young and PWC(F ossung, 2010). Challenges of harmonization of accounting: Although it is theoretically acclaimed globally that the harmonization of accounting standards are necessary for the global economy, there are barriers or challenges to implement the same. The basic challenges are: Reluctant attitude- It is observed that US is not willing to accept the systems sponsored by International Accounting Standard Committee or IASC. As US is considered as the biggest market, it is really tough for international business houses to run their business without the acceptance of IASC. Being considered as the Big Brother of G4, the activities of IASC is restricted as a mere spectator in G$ meeting without the power of voting. Environmental difference- In case of application of harmonized accounting standards- legal, social, economic and cultural environments are playing major role which are main causes of diversity in the practiced accounting standards globally amongst the nations. Quality of Financial reporting It is depending upon the culture of accounting standards applied in the countries. Proper regulation with other support can ensure proper implementation of accounting standards and harmonization can only be possible if the countries are ready to accept the changes on accounting practice as per IASC. Rules vs. Principles- Conceptual difference of application of accounting standards raise doubt for the countries. International Accounting Standard Board is based on principle based guideline. There are countries which are more prone to rules and the concp0tual conflict is raised between rules and principles so far application of accounting standard is concerned. Main problem in this aspect is application of IFRS as a strong instrument of harmonization which cannot be acceptable for the countries that are habituated in rule based accounting system(Shil et al., 2016). References: Das, B. Pramanik, A.K., 2009. Harmonization of Accounting Standards through Internationalization ; https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.659.4546rep=rep1type=pdf. International Business Research, 2(2), pp.194-202. Available at: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.659.4546rep=rep1type=pdf. Fossung, M.F., 2010. Harmonisation of accounting standards: disclosure policies and practices of european commercial banks. [Online] Available at: https://www.memoireonline.com/10/09/2775/m_Harmonisation-of-accounting-standards-disclosure-policies-and-practices-of-european-commercial-bank6.html [Accessed 29 December 2016]. Gulin, D., Ferdo, S., Vai?ek, V. Lajo, Ã… ½., 2003. History of accounting regulation in the Europe and its effects on theaccounting regulation in Crotia. [Online] Available at: https://www.crefige.dauphine.fr/recherche/histo_compta/gulin.pdf [Accessed 29 December 2016]. Haldma, T., 2003. Harmonization of Estonian accounting system with the European framework. [Online] Available at: https://www.mattimar.ee/publikatsioonid/majanduspoliitika/2003/2003/6_Ettevotluspol/49_Haldma.pdf [Accessed 29 December 2016]. Shil, N., Das, B. Pramanik, A.K., 2016. Harmonization of Accounting Standards through Internationalization. [Online] Available at: https://www.researchgate.net/publication/42385908_Harmonization_of_Accounting_Standards_through_Internationalization [Accessed 29 December 2016]. Unc, 2013. The EU and the Global Convergence in Accounting Standards. [Online] Available at: https://europe.unc.edu/wp-content/uploads/2013/08/Brief0709-accounting-standards.pdf [Accessed 29 December 2016].