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. As claimed by Alexander and Nobles 2008 , the increasingly global nature of capital markets also triggered a demand for a uniform accounting standards. Based on information mentioned above, it can be assumed that because higher information quality reduces both the risk to investors from buying and owning shares and the risk to less informed investors due to wrong selection due to lack of understanding, it should lead to reduction in firms cost of equity capital. The process of harmonization of accounting standards gives the global community a single entity. A standardization of international accounting information would facilitate easier interpretation for financial experts all around the world seeking to invest internationally.
As a percentage of revenue, small companies spend more on regulatory compliance than do large corporations. 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. The latest developments in global commerce are likely to lead to a further wave of deregulation and market reforms in local economies. Moving towards Harmonized International Accounting Standard…………………. Blake 1990 provides grounds of how accounting criterion compositors were influenced by economic effect issues in different states. However, the profession has also witnessed some improvements in recent years in the process of global convergence putting some ray of hope.
With diversity in accounting standards from country to country, these firms face a myriad of accounting requirements from the countries in which they operate. In a rapidly globalizing world, it only makes sense that the same economic transactions are accounted for in the same manner across various jurisdictions. In order to be listed on credible stock exchanges, businesses must abide by the financial reporting requirements of the stock exchange it wishes to sell securities through. Investors and small businesses can measure the performance of one company against another or against industry benchmarks and projections. They bring about uniformity in financial reporting and ensure consistency and comparability in the data published by enterprises. How information disclosed to the market is a central issue in ensuring market efficiency. It would enable investors, banks or financial analysts to make better decisions.
In 1973, with the growing amount of international trade, the International Accounting Standards Committee decided to… Examine the advantages and disadvantages for China of harmonization of accounting standards under the current economic and social system. Through the analysis of various areas of harmonisation this study aims to measure harmonisation between large. These include the length of time it will take to implement the new standards and the costs relating to the process. Do you agree with this statement why or why not? The objective of the framework is to build up new international standards by updating and refining the existing concepts, whereby assist national standard-setting bodies in developing standards consistent with international standards. In countries where institutions are not deeply rooted, shifting to the new business model may meet less resistance than in countries where those institutions are more developed. In many cases, the company must design new procedures, which requires a large financial investment that includes employee labor costs, system upgrades and employee training.
The consistency also contributes to better understanding between investors, lenders and other businesses as there will be the nature of predictability in place. On the simplest level, harmonisation is the process of bringing international accounting standards into some sort of agreement so that the financial statement from different countries are prepared according to a common set of principles of measurement and disclosure. In that regard, many developing countries should continue to improve the quality of their educational systems and their physical infrastructure notably telecommunications and transportation , which will enable them to compete more effectively in local and regional markets and, in the case of some industries, in global markets. Thus, its is easy to understand, which advantages a harmonised world-wide accepted set of Accounting Standards would have. One of the main tools used in financial analysis is the comparability of financial information for similar businesses in competition. The goal is to achieve some level of comparability in the way financial statements are prepared and presented.
These users rely on the assumptions set forth in the accounting standards when interpreting the results reported. Harmonization of accounting standards between nations is a very important current issue which has many possible benefits or consequences, as well as many obstacles to overcome for success. Another disadvantage of harmonization is when there exists different economic environment as harmonization could be considered useless. As a result of the massive increase in international business and the difficulty of reporting accurate universal financial information, initiative has been taken to create a harmonization of accounting standards between nations. . Therefore, one of the first problems with standardisation I conclude is that the result of the harmonisation process could neither be a copy of the Anglo-American Model nor one of the Continental-European Model. Yet global accounting policies may soon change as key accounting rule makers worldwide work toward the goal of convergence.
A similar internal reporting system gives the chance of better comparisons, less confusion and mistakes between the parts of the company. The following example will make this more clear. Business leaders need to take the time to understand the rules and regulations and develop practices that meet standards without huge costs. The Chinese government has introduced four sets of accounting standards…. And even though accounting standards would be standardized across countries, laws and other regulations would not, which could hamper the comparability of financial statements across countries even when the same accounting system is being used.
When international harmonization occurs, the difficulties for companies and individuals considerably decrease in presenting the financial statements and their interpretations. Since it is assumed that I have. 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. Therefore harmonization of accounting standards has become an inevitable choice for many countries. There are proposals for the United States to adopt the International standards. These are just a few of them: · European Union · International Organization of Securities Commissions · International Federation of Accountants · World Trade Organization · International Monetary Fund · World Bank Advantages of Harmonization The first and most important advantage of harmonization of reporting standards is to achieve comparability in financial statements. This process of reconciling financial information for conformity with different accounting systems can be expensive, and also make information misleading.
International Auditing Firms: Another major force in the movement toward international harmonisation was the economic self-interest international auditing firms have in such standards, so that they can sell their services as experts in many different parts of the world. Disadvantages of Harmonization As mentioned by Ketz 2004 , information will be difficult to obtain from domestic accounting standards. The development of international trade and that has occurred over the old two decennaries has increased the desire to harmonize accounting criterions across the Earth. And the strongest capital markets see the ability to accept International Accounting Standards as enabling them to compete more effectively: the need to prepare extra accounts to have a cross-border about the desirability of allowing domestic companies to use international standards for domestic companies may be content with the stock exchange quotations in other countries and see no need for a quotation on the domestic exchange. Another hurdle of harmonizing accounting standards will be the unwillingness of countries to commit to a uniform code as many of them have different political, economical, and ethical systems.
This increased ability to interpret information could potentially result in an overall increase in educated global investment. In a world where national economies are so linked together that crisis in one can send shock waves rolling into every corner of the universe, it seems entirely against logic that accountancy professionals must heed the out-of-date doctrines of separatism. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. Otherwise it is not possible if there is no conceptual framework in the country. The United States and Europe are the two most important capital markets. This cumbersome and expensive translation requirement severely limits the access of foreign firms into U.