Along with economic globalisation and the planetary convergence of capital market, the figure of international funding activities such as international listing and security issue has increased. From nonsubjective pattern, these international economic activities requires accounting, which serves as an international commercial linguistic communication and necessitate the acceptance of the same or similar accounting criterions with the purpose of supplying accurate, just and comparable accounting information. Accounting international convergence has become an ineluctable procedure, in which all states have to face. Since 2001, the IASB has incorporated explicating a set of international accounting criterions with high quality which can be applied all over the universe into its strategic intent. Through changeless attempts of these old ages, great betterment and development have been achieved in the country of accounting international convergence. In this essay, treatment and analysis will be made on some issue related to accounting international convergence.
Discussion and analysis
Equally far as the manner to recognize the internationalisation of accounting criterions is concerned, there are two methods. One is accounting criterions standardisation, which means following one individual set of planetary criterions all over the universe. The other one is accounting criterions convergence. Christopher ( 1996 ) believed that international harmonisation of accounting requires doing attempts to cut down differences between accounting criterions of different states and parts instead than explicating one individual set of accounting criterions to replace for the accounting criterions of assorted states. Attention was paid to the first method of recognizing accounting internationalisation, which aims to explicate one individual set of international accounting criterions.
Everything which appears has a ground for its being. Accounting internationalisation is non an exclusion. Judging from the causes of accounting internationalisation, it is obvious that under current economic environment, following one set of planetary criterions has many advantages.
Choi and Meek, ( 2005 ) argued that the progressively incorporate international capital market creates a pressing demand for the acceptance of one set of accounting criterions. Different accounting criterions of different states and parts have presented many troubles for transnational endeavors and constrained the farther development of the international capital market. Accounting internationalisation is advantageous for states and parts to pull foreign investing, therefore bettering economic communicating and development. Ray ( 2006 ) believed that for those endeavors which issue stocks, bonds and other securities abroad or transport on international trade, following one set of international accounting criterions all over the universe can cut down the cost of determination and salvage dealing cost greatly.
Nowadays, economic globalisation has become an inevitable tendency and it has brought great challenges to international capital market. As an of import commercial linguistic communication, accounting besides has to be adapted to the current economic environment. Adopting one set of accounting criterion can better the comparison of accounting information from the endeavors in international capital market. The convergence and standardisation in accounting criterion and pattern can greatly extenuate the exchange cost in the international capital market, therefore advance its development.
However, as a consequence of the bing differences between different states and parts in political relations, economic sciences, and civilization and so on, following one set of accounting criterions besides has many disadvantages. Though a incorporate set of accounting criterions can work out many jobs for endeavors in international market, it may non be adapted to assorted states and parts.
Accounting differences exists because of the differences in the state of affairs of different states. Deegan ( 2006 ) believed accounting purposes to supply utile information for information users including investors, creditors, and the authorities and so on. Accounting information should be relevant, dependable and just. Ray ( 2006 ) argued that a set of international accounting criterion for which it is impossible to see the state of affairs of all states can non supply utile information for users as it is separated from the environments in which it lies.
One set of planetary criterions: appropriate for all states or non
In my sentiment, one set of planetary accounting criterions is non applicable for all states. Indeed, this is besides the most hard job in the convergence of accounting criterions.
Christopher ( 1996 ) discussed that it can be said that accounting is merchandise of its environment as its exigency and development are well influenced by the environment. It will be nonmeaningful to divide it from the environment it lies in. The environments affect political, economic, and legal facets and so on. In pattern, different states and parts have different environments. With respects to the economic facet, different states operate in different phases of economic development. The degree of economic development and patterns of parts among different states could be well variable.Some states are presently in the phase of a self- sufficient economic system ; some have entered the extremely developed industrialisation phase while others may come in information epoch.
Apart from economic facet, the differences of accounting environments of different states besides come from the differences of political system, legal system, instruction degree, societal civilization and so on. For illustration, in Muslim states, spiritual rules prohibit the collection of involvement. In these states, it is impossible to utilize accounting processs related to involvement. As stated above, when explicating a set of international accounting criterions, it is difficult to see the state of affairs of all states. In this manner, a incorporate accounting criterion may non be appropriate for all states. Accounting has economic effects. If it is adapted to the economic state of affairs of some states, it will advance the economic development. If non, it may destruct the involvement of these states.
Judging from this, in pattern, accounting criterions convergence may be more applicable than standard standardisation. In fact today many states have contributed to amend or revise their criterions to meet with international accounting criterions every bit far as possible. However, in the procedure, there are still many jobs. Which attack should be adopted in criterions explicating, principle-based and rules-based, is one of them which remain to be solved.
Principle-based and rules-based attacks
After the visual aspect of Enron Scandal and along with the publication of Sarbanes-Oxley Act, the statements about principle-based and rules-based attacks for the ordinance of fiscal coverage have attracted attending from the field of theory and pattern.
By and large talking, the principle-based attack requires accounting criterions to pay more attending to the preparation of rule in accounting with respect to the intervention of economic events and concern. Schipper ( 2003 ) discussed that the principle-based ordinances which concern rule demands are normally brief and pay important attending to the demand of investors and other fiscal describing users.
Rules-based attack for accounting ordinances depends on elaborate accounting ordinances, makes many bounds on the range of application and provides elaborate accounts and using counsel. Rules-based attack ordinances concern much about the suggestions of fiscal coverage formulators and the CPAs.
Advantages and disadvantages
It is based on economic dealing and concerns the signifier of describing events. Bratton ( 2003 ) discussed that it requires accounting ordinance formulators to supply elaborate accounting criterions sing to accounting practical jobs. Obviously, accounting ordinance formulated under rules-based attacks has stronger operability and requires less professional judgement.
However, as the rules-based attack requires the proviso of elaborate counsel and accounts, accounting ordinance deficiencies of selectivity of accounting policies, and can non account for many exceeding events. Accounting criterions under rules-based attack will be more and more complicate and concrete. Consequently, the phenomenon of criterions overload may look. Standards overload may convey disadvantageous effects on accounting pattern, the utility of fiscal information and direction determinations. For illustration, the comptrollers and CPAs may merely provide to the concrete demands of accounting criterions, ignore the kernel of economic minutess and lose basic professional judgements. Besides, excessively complicated fiscal coverage and other revelation information are difficult to understand for information users and this will extenuate the utility of accounting information.
It concerns the kernel of economic dealing and makes small bounds on the range of application. From theoretical positions, principle-based attack has many advantages compared with rule-based attack. It emphasizes refering the kernel of economic minutess. Compared with rule-based attack, it is briefer and can run into the demands of information users. The intent of principle-based attack conforms to that of fiscal coverage. Besides, under rule-based attack, the freedom grade of accounting policies pick additions. Bratton ( 2003 ) discussed that it can cut down the exclusions in application, therefore reflecting the economic kernel of minutess and events covered by criterions more clearly.
However, the deficiency of elaborate accounting ordinances, principle-based attack has higher demands on professional judgements of comptrollers. Enterprises of which comptrollers have better professional judgement and higher ethical quality can supply more relevant and comparable information. Schipper ( 2003 ) discussed that this attack may besides take to the misusage of professional judgement and go forth more room for accounting use. If fiscal coverage formulators and CPAs collaborate, it will convey greater clang to capital market than Enron dirt. Therefore, if principle attack is used to explicate accounting criterions, it requires non merely high quality professional comptrollers, but besides sound corporate system and complete legal system. Otherwise, while conveying convenience ; principle-based attack will besides convey approximately many jobs.
In this easy, treatment and analysis has been made on three issues related to accounting criterions explicating and its internationalisation. Adopting one set of accounting criterions all over the universe is advantageous to better the comparison of accounting information and cut down the exchange cost in international capital market. However, in pattern, it has many operational jobs. As different states have different state of affairss, one set of accounting criterions may non be appropriate for all states. Sing the two attacks to accounting ordinances, principle-based attack has many advantages compared with rule-based one if comptrollers have professional ability and good judgement.