The inevitability of international accounting harmonization

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The inevitability of international accounting harmonization

Let us make an in-depth study of the meaning, need and major forces of harmonisation of accounting. Harmonisation is a process of increasing the compatibility of accounting practices by fixing the limits to their degree of variation.

Harmonisation carries a wider meaning than standardization although it is sometimes being used inter changeably. In a simplest way harmonisation means not only bringing out uniformity by reducing alternatives and differences in procedures by setting specific bounds, but embraces a blending and combining the elements of accounting practices of various countries into an orderly structure.

There is pressure for harmonisation of divergent accounting practices not only from the users of financial statements but also from those who regulate and prepare them.

Pressures come from the investors and financial analysts to facilitate investment and credit decisions.

Intergration Problems

The financial analysts are of the view that international diversity in accounting practices has enough potentiality to destroy the international flow of capital. The Investors are also putting pressure for harmonisation as they desire that financial information should not only be intelligible but comparable also.

Increased number of multinational corporations on global arena also calls for increased harmonisation. Lack of harmonisation in different accounting standards developed by different countries also imposes financial burden on multinational corporations.

Hennessy who is chairman of credit issue has observed that the cost of converting to US accounting standards is at least S 1 million for a major Japanese or British Company.

Negative Effects on U.S. Small Business

Accounting professionals also put pressure for harmonisation as it will lead to the internationalization of their profession. Universal accounting principles would enable professional accountants to operate with ease in different countries. Pressures for harmonisation also come from governments and revenue agencies particularly in developing nations.

Future magazine called it most innovative company of America. What happened to the most innovative company of America? ENRON borrowed heavily to support its growth into energy markets throughout the world using unusual methods of accounting.

The inevitability of international accounting harmonization

ENRON was able to hide most of these liabilities. Investors had no idea of the risks involved with these off balance sheet companies. This sudden change in opinion by USA could create a globally understandable set of accounting standards that could increase the efficiency of Global Capital Markets.

Harmonisation ensures high quality financial reporting. Harmonisation ensures a reliable financial reporting and disclosures. Harmonisation enables a systematic reviews along with evaluation of performance of a multinational corporate unit having subsidiaries in various countries where in each country has its own set of GAAP.

Harmonisation adds to the global credibility of a corporate unit. Harmonisation makes the comparison of the corporate unit against the domestic and international peers more easier. Harmonisation provides a level of playing ground where no country is advantaged or disadvantaged by its GAAP.

Sometimes Harmonisation can prove to be crucial to the economic development of a country. Major Forces Leading to Harmonisation: This is primary and single factor responsible for the need of harmonisation. Increased need of harmonisation is there because of the following: Regional, Political and Economic Harmonisation: Regional, Political and Economic Harmonisation is also compelling accounting professionals for the need of increased harmonisation in accounting practices.U.S.

Securities and Exchange Commission Washington, D.C. international accounting harmonization is within our grasp. References can be found throughout the '60's, '70's, and 'ao's to the need for and the inevitability of harmonization, yet commentators from those decades.

Harmonization is a process of increasing the compatibility of accounting practices by setting limits on how much they can vary.

Harmonized standards are free of logical conflict, and should improve the compatibility of financial information from different countries. Result: The international harmonisation of Accounting Standards is a process, which brings international Accounting Standards into some sort of agreement, in order to achieve a common set of Accounting principles.

European companies have to use the International Accounting Standards (IAS) in the European Union (EU), beginning . Moreover, international accounting differences increase the cost of accounting system in international companies for trans-border transactions as well as cooperation.

“A survey of European international companies indicated that different national accounting systems caused between 10% and 30% of the total accounting costs” (Cecchini, ). Intergration Problems. In general, the United States, Japan, England and Canada have resisted transitioning to International Accounting Standards.

Argument Against Harmonization Essay As stated in the book, International Accounting: A User Perspective, harmonization is defined as “the process by which differences in financial reporting practices among countries are reduced with a goal of making financial statements more comparable and decision-useful across countries - Argument Against Harmonization Essay introduction.

Argument Against Harmonization Essay Free Short Example | Graduateway