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... an additional political dimension to any effort to change those standards. (Said 2001) Another barrier that the governments of different countries will have to face is the coordination of their accounting policies with policies prevailing in other countries in order to minimize negative externalities and to maximize positive externalities. There are other barriers to harmonization as well. For example, users might have different needs in different nations (e.
g. , debtor vs. creditor nations; countries that have very active stock markets and those where banks primarily accumulate and invest capital; investor vs. invested countries; etc. ). (Wyatt 1997) (Cited in: Saudagaran 2001) Further, states that the divergence between the needs of large multinationals and smaller business entities in developing countries might thwart the harmonisation of accounting standards. In addition, there may be different levels of sophistication and influence among different national accounting professions. Finally, there is the high cost of requiring issuers to change accounting principles, or to keep a "separate set of books" for multinational offerings.
The existence of these barriers reinforces the belief of some that active public policy initiatives to set international accounting principles may not be desirable; and that harmonization of accounting principles and financial disclosure has an overstated benefit. It has been asserted that, for instance, if a particular financial market requires too much accounting information or has too many regulatory burdens; firms will migrate to another region. On the other hand, if a financial market provides too little accounting information or regulatory guidance, private firms will find it in their interests to supply more. Criticism of Harmonisation of Accounting Standards (Blake and Hossain 1996) First criticism is that underdeveloped countries and developing countries see harmonization of international accounting standards as an imposition of standards by economically superior countries. Another criticism is that the fact that accounting is flexible in nature and can adopt to different number of situations but if accounting standards are harmonized it is believed that they won't be flexible enough and the standards set internationally cannot possibly cater for the wide range of national circumstances, legal systems, stages of economic development, and cultural differences. Further more the committee of standard-setters (IASB) may find it difficult to reach unanimous agreement on some of the accounting standards and they might have to make compromises so that these accounting practices are accepted globally.
This implies that these standards will be permissive and inadequate. (Choi, Frost and Meek 1999) Moreover, others have expressed the view that international harmonisation may create "standard overload." This implies that corporation that have to deal with the national, social, political and economic pressure will be more hard pressed to comply with additional complex and costly international requirements. Harmonization of international accounting principles is unlikely to come about because too many different national groups have vested interests in maintaining their own standards and practices which have developed from widely different perspectives. (Parker 2002) (Cited in: Financial Times) Harmonisation of accounting standard could prove dangerous to the companies as the standards could cut profits and inject volatility into the balance sheets of the companies. Therefore the companies must educate there investors about the effects harmonization will have on their reported profits and liabilities. In support of this (Va essen 2002) (Cited in: Financial Times) states that harmonization of accounting standards will change the complexion and quality of financial information in ways not seen before, therefore it is vital that companies understand the extent of the impact and ensure stakeholder understand it too. Conclusion (Berton 2000) Harmonization of accounting standards has been worked on for 26 years by IASC now know as the IASB, it has representatives from 140 countries and the research shows that a large number of companies are complying with International Accounting Standards (IAS) issued by the IASB. (Roberts, Weetman and Gordon 2002) The European Union Commission has also declared that all the EU listed companies will use IAS for consolidating their accounts from 2005, but it still has a long way to go. There are a number of barriers and hurdles discussed earlier in the essay that the IASB needs to overcome in order to bring about the harmonization of international accounting standards. (Dunn 2002) In order to ensure the uniform application of accounting standards across cultural and political boundaries IASB needs to ensure that there are strong audit practices in order to bring about the integrity of the standards.
USA is also heavily involved in developing international accounting standards with IASB. Most of the countries which trade with USA prepare their accounts according to US GAAP this in turn makes US GAAP accepted not only in USA but in other countries as well. As USA being the biggest and the strongest economy in the world and its ability to control a large part of the capital market poses a great challenge for the IASB because the companies in USA using IAS issued by the IASB need reconciliation with the US GAAP. This implies that IAS cannot be adopted without the approval of FASB. Furthermore IASB will have difficulties in refusing the proposals made by USA because of its heavy involvement.
This will hinder the harmonization of account standards. One can argue that countries which are economically superior to other countries will have their way out in setting the international accounting standards. However there are a number of benefits as well which will come with the harmonization of international accounting standards. It will bring uniformity in the preparation of accounts and will make the accounts of companies more transparent and comparable which in turn will help the investors to make the right investment decision. There are other benefits as well which the harmonization of international accounting standards will bring which have been discussed earlier in the essay. Sir Bryan Carsberg, secretary general of the IASB (Cited in: Berton 2000) is not just optimistic about world harmonization, he is sure that all countries will move to IASB or the international accounting standards.
Despite what Sir Bryan Carsberg believes, in the current situation it is very difficult to judge the future of international accounting standards but one can say that slowly but steadily countries are moving to the harmonization of international accounting standards.
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Research essay sample on Need For Harmonization Of International Accounting Standards
