Investigating the Harmonization of Accounting Practices Essay

Growth in international trade has been on the addition over the old ages asking several administrations to be involved in the attempts to harmonize accounting patterns either regionally or internationally. Among those, taking in this attempt were the European Union ( EU ) and International Accounting Standards Board ( IASB ) ( once International Accounting Standards Committee, IASC ) .

This essay will look at background and harmonization procedure of the two administrations and measure their accomplishments to day of the month. It is considered that ‘harmonisation ‘ possibly defined as a agency by which differences are reduced hence harmonization of fiscal patterns will be regarded as the procedure by which the differences in accounting patterns across states are reduced finally ensuing in a set that is comparable ( Nobes and Parker, 2010 ) .

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Background and Aims

The European Union ( EU ) is an economic and political brotherhood of 27 member states located in Europe. The EU was established on 1 January 1958 following the Treaty of Rome 1957 ( Nobes and Parker, 2010 ) . The aim of Treaty had established regulations to promote free motion of individuals, merchandises and services, and capital. This constitution drives the demands of harmonisation of accounting and fiscal coverage.

Therefore, the most of import aim of EU is to make a common market for the member states. Uniformed accounting criterions are required regionally in all parts of EU to promote the flow of capital, heighten the protection of the stockholders and other stakeholders, and increase the dependability and comparison of companies ‘ fiscal information. The EU shows a part to regionally harmonising accounting patterns by established Directives and Regulations which are the two chief instruments to harmonise company jurisprudence and accounting criterions ( Nobes and Parker, 2010 ) .

As as an economic and political brotherhood, the EU have issued and established many directives to harmonise accounting pattern in regional term. However, in international range, the IASC is one of organic structures are set uping on harmonisation of accounting regulations and revelation and it reported a figure of international criterions ( Nobes and Parker 2010 ) .

IASC was founded in June 1973, and the Board of IASC was constituted at the same time by chief accounting organic structures in nine different states such as Canada, France, Germany, UK, and USA etc. The IASC was established to harmonise international accounting criterions. IASC has received board scope of support for its attempt to harmonise international accounting, which has been considered as taking force to harmonisation ( Larson, 1999 ) . The harmonisation of accounting is besides supported by IOSCO ( International Organization of Securities Commissions ) , big public accounting houses, trading brotherhoods and most national public accounting organic structures. The basic aim of IASC is considered as printing accounting criterions to be observed in the fiscal statement readying and promote their credence and observation globally ( Nobes and Parker, 2010 ) . In 2001, the IASC restructured and renamed to the IASB. The new organisation has shown new more comprehensive aims compared to the IASC. To be able to understand the aims of IASB, the conceptual models should be explained. The IASC ‘s conceptual model included the aims and the qualitative features. The following tabular array 1 shows the elaborate aims of IASB under the IFRS Foundation Constitution.

IASB ‘s Aims

To develop high quality and apprehensible international accounting criterions to steer high quality, transparent and comparable information in fiscal coverage. Thus accounting criterions will assist the planetary capital market participants and other users ‘ determination devising.

To promote the usage and strict application of criterions

To carry through the ( a ) and ( B ) , and take history the involvement of little, average size entities and emerging economic history suitably.

Give high quality solutions about convergence of national and International accounting criterions.

Beginning: IFRS Foundation Constitution (, 2010 ) .

The qualitative features of fiscal statements made by IASC followed the FASB. In order to calculate the hazard, the accounting information must include all these three features: relevancy, dependability and comparison.

The motivations of harmonising accounting patterns by these organisations:

One is tempted to see ‘harmonisation ‘ aim as holding shifted from cut downing differences to coming out with a criterion or theoretical account for uniformity. The motivations of the two most influential international organic structures involved in the procedure of harmonization of the different national accounting systems, hence ( as stated on their web sites ) , seems to propose that they aim to ‘develop ‘ or ‘create ‘ a individual set of high quality, apprehensible and enforceable planetary accounting criterions, ( Elliott and Elliott, 2009 ) . It is more of standardisation than harmonisation as it is less flexible. This therefore raises intuition as to the true intent of their attempts particularly when we consider their several current composings, history, their central offices and the bulk of stakeholders who are likely to profit. Perera ( 1989 ) as quoted in Deegan and Unerman ( 2006 ) argued that the accounting criterions themselves tend to reflect the fortunes and forms of thought of the representatives that makes the commissions. Already, IASB seems to hold noted similar unfavorable judgment and Nobes and Parker ( 2010 ) states that the legal guardians will bit by bit increase the Board rank to include members from Europe, North America, Asia/Oceania, Africa and South America by 2012.

Similar concerns were one time echoed by Gray, et Al ( 1981 ) while noticing on the proposal to present “ criterions ” specifically for MNCs and the inquiry seems to be still valid. He submitted that the term criterion could be used loosely to intend a set of statements which may include mention to revelation or measuring issues for the benefit of Multinational Companies. He found such statements to hold a different significance from that intended to accomplish rigorous uniformity to those capable of more flexible reading ; from those derived from statutory authorization, to those which are efficaciously consultative. However, he relented that the fact that they exist as guidelines or standards against which MNCs answerability is assessed, qualified such statements to be described as ‘standards.

Whittington ( 2005 ) stated that the motive for the creative activity of the IASC was due to the demand for a common international linguistic communication of accounting to function capital markets. He highlighted that a common set of accounting criterions increased the comparison of companies in different states and facilitated the easy consolidation of group of companies based in different states. Although IASB sets criterions after close examination from different national criterion compositors, it is apparent that it is involved more with convergence than harmonization. This may in a manner besides back up the sentiments expressed by UK finance managers during a study that IFRSs undermined UK ( and evidently of all other states ) describing unity, ( Elliott and Elliott, 2009 ) . Countries still necessitate to keep their national pride as they exhibit significant economic and cultural differences.

On another manus, it is of import to observe that we now have more of a planetary economic system therefore the development of international criterions makes it easier to raise cross-border finance and to compare public presentation of companies by users who include prospective investors, ( Elliott and Elliott, 2009 ) . To drumhead, Epstein and Mirza ( 2001 ) and Choi et Al. ( 2002 ) gave grounds for the harmonisation procedure of accounting patterns in the preparers and user positions, they stated that harmonisation created immense advantages as listed in the undermentioned tabular arraies:

Procedure of harmonisation on IASC/IASB and EU

The IASC and its replacement are considered to be the most successful organic structure that evolved in harmonisation of accounting patterns ( Nobes and Parker, 2010 ) . The harmonisation attempts of IASC can be classified in three stages. Simultaneously, the IOSCO and IFAC have supported to the IASC/IASB and EU.

First stage: 1973 to 1988

This period of clip is called the first phase of development of IASC. During this period, the IASC set up most of its criterions which covered major accounting subjects like accounting for stock list ( Epstein and Mirza, 2001 ) . IASC focused on accomplishing compatibility between the bing criterions and IAS and giving a ‘lowest-common denominator ‘ attack cross the states. At the same clip, the scheme of IASC allowed multiple methods that used in assorted states. IOSCO accepted that IASs for fiscal statement of foreign companies that listed in their stock exchange market ( Larson, 2011 ) . Additionally, the IFAC was founded in 1983 to develop the countries which were uncovered by the IASC, such as scrutinizing and direction accounting ( Nobes and Parker, 2010 ) . The following tabular array shows the item information of procedure:

Table: Harmonization Procedure from 1973 to 1988

Harmonization Process 1973-1988



The IASC was founded.


The Economic Cooperation and Development published an proclamation on investing in MNCs to develop guidelines on revelation of information ( Choi et al. , 2002 )


A Report about IASs for transitional corporations was issued by an adept group of United Nations ( Choi et al. , 2002 ) .


In order to put IAS widely, the IASC had forums with other organisations.


Foundation of IFAC helped IASC to acquire a closer relationship with other organic structures ( Nobes and Parker, 2010 ) .


The London Stock Exchange issued a figure of integrated companies to follow IAS in the UK or Ireland ( Choi et al. , 2002 ) .

Second stage: 1989 to 1993

During this period IASC started to collaborate with IOSCO, and made understanding with IFRS for cross-border securities offerings ( Nobes and Parker, 2010 ) . However, the IASC was diminishing the picks under the IAS and the IASC needed more capital market so that the IOSCO would accept it in the period between 1989 and 1993 ( Fritz and Lammle, 2003 ) . IASC published a model to fix fiscal statement in 1989 and “ Comparability/Improvement Project ” was carried out to contract the alternate accounting intervention in this period. Furthermore, 10 criterions was revised in 1993 ( Nobes and Parker, 2010 ) . Table 4 shows the procedures in this period.

Table: Harmonization Procedure from 1989 to 1993

Harmonisation Process 1989-1993



Exposure Draft 32 was issued by IASC

Third stage: 1993-2001

IASC started understanding with IOSCO and IOSCO supported 30 nucleus criterions that were developed or revised by IASC. From 2001, IASB started to better bing International Accounting Standards, trade with the job that IASC have n’t addressed and enhance quality of fiscal study. IASB besides involves in cut downing the international differences in criterions with FASB ( USA ) ( Nobes and Parker, 2010 ) .

Table: Harmonization Procedure from 1993 to 2001

Harmonization Process 1993-2001



The European Commission planned to back up the IASC to do IAS nexus with EU accounting demands.


The SEC manifested that it “ supports the IASCA?s aim to develop, every bit efficiently as possible, Accounting Standards that could be used for fixing fiscal statements that could be used in cross-border offerings. ” ( Choi et al. , 2002:296 )


The IOSCO published an proclamation “ International Disclosure Standards for Cross Border Offerings and Initial Listings by Foreign Issuers ” ( Choi et al. , 2002:296 ) ; the IASC began to research a new scheme and organisation construction.


The IOSCO accepted the IAS, particularly for foreign registries ( Nobes and Parker, 2010 ) .


IASB was set up by back uping from the IOSCO and SEC ( Nobes and Parker, 2010 ) .

The fundamental of EU accounting harmonisation is a harmonisation of company jurisprudence which is purpose to make a unvarying concern environment ( Mueller, 1997 ) . Harmonization of company jurisprudence taken by EU is directives, which have publicized 12 directives. Furthermore, the Forth and the 7th directives made the part to the accounting harmonisation procedure in the Europe ( Hulle, 2001 ) . In inside informations, the 4th directive in 1978 combines Member States ‘ proviso and supply a guideline of the presentation and content of one-year histories, rating methods and the publication. The Directive besides pointed out that the one-year study must include a just reappraisal of house ‘s fiscal place and the ‘true and just ‘ position brought from UK was foremost mentioned in compulsory term. Besides, the 7th Company Law Directive in 1983 combines National Torahs on consolidation accounting and the 4th directive together, and sets out the methods of fixing amalgamate histories.

Choi ( 2002 ) suggested that IASs as the new accounting criterions are the preferable pick for EU states by European Union. In footings of international harmonisation of accounting criterions, the policy stated by European Commission in 1995 pointed out that it was more efficient to tie in EU with IASC and IOSCO than amend bing directives ( Epstein and Mirza, 2001 ) . In 2000, a farther measure in harmonisation procedure was made by EU, which required endeavors on a regulated market to fix their amalgamate histories under IAS ( Fritz and Lammle, 2003 ) .

The of import obstructions faced by EU and IASC are differing accounting pattern, which caused by different states, patriotism, every bit good as deficiency of strong professional organic structures and international enforcement bureau. Besides, the difference in regulative beginnings is the challenge for EU and IASC ( Houssain, neodymium ) .

IASC is loosely focused on taking unneeded differences in accounting rules and pattern around the whole universe ( McComb, 1982 ) . That A deficiency of synchronism between release of criterions in different states and the preparation of criterions by IASC will be an obstruction for harmonisation ( Rivera, 1989 ) . Furthermore, deficiency of the professional organic structures takes a challenge to implement IAS ‘s. It is said that IASC can merely implement its accounting criterions by its member organic structures, non through the ain authorization. Taking France and Germany as illustrations, the professional accounting organic structures in these two states have seldom influence scene of accounting regulations than puting by the authorities and governmental organic structures, so that IAS ‘s can merely promoted by persuasion ( Nobes, 1995 ) .

In footings of patriotism, there is an unwillingness to alter accounting pattern by accepting via medias. Patriotism may be brought out when trying to keep independency of sovereignty. It can be observed that some states did non do a reaction to efforts of harmonisation by IASC ( Nobes and Parker, 2002 ) .

Another challenge is the economic effects of a peculiar state. Various in economic effects of criterions could ensue in de-harmonization unless considered by those who set the criterions ( Nobes and Parker, 2002 ) . The international accounting houses are besides worried about the increasing involvement of foreigners in the profession and the wish the standard scene procedure to be kept outside of the custodies of the authorities ( Samuels and Piper,1985 ) .

The accomplishments or successes of both EU and IASC/IASB in harmonizing accounting patterns:

In order to make up one’s mind whether EU and the IASC were successful, it is of import to reexamine the aims of these 2 organisations.

First of wholly, the accomplishments of EU would be evaluated. In the past, states in European used control of bookkeeping system alternatively of the fiscal statements which were deficiency of jurisprudence and format. The EU set two chief directives to better fiscal coverage patterns and brought about some harmonization. These directives approached quickly throughout Europe and nowadays most states in the Continental Europe followed the EU ‘s accounting system instead than Anglo-American type. The Table 6 describes the extent of harmonisation that has been achieved in falling order.

Table: Extent of harmonization achieved between 8 EU states in falling order

The balance sheet interlingual rendition

Differences in interlingual rendition intervention

Value of stock list

The income statement interlingual rendition

The manner to near depreciation

Examination and betterment

Value of Fixed Asset

Good will

Approach for cost of stock list

Beginning: Herrmann & A ; Thomas, 1995, p264

Besides those successes, EU had some failures. Montagna ( 1986 ) stated that weak ordinances, general and obscure revelation made European histories be the same. In add-on, Blake and Amat ( 1994 ) concluded that because of no way for foreign currency interlingual rendition, deferred revenue enhancement and accounting for lease committednesss, the EUs ‘ directives was failed itself. Some states have explained the directives paralleling with the national accounting tradition. Some single companies might decline to hold to the regulations given by EU. For illustration, 90 % of German companies failed to print their histories. The EU harmonisation besides failed at the material degree of existent accounting patterns. The Table 6 shown supra have presented 9 material harmonization completed by 8 European states. Some of these countries are non concealed by the EU statute law.

Second, we will find whether IASC succeeded. The term “ issuing criterions ” is clearly successful. IASC released 41 criterions coming along with conceptual model. However, because of that the criterions were criticized for leting many options. Another aim which should be considered is publicity and observation of criterions. We have to analyze four types of state: developing states, emerging states, Continental Western Europe and Japan, and capital market states in order to make up one’s mind IASC ‘s success. In developing states type, Saudagaran and Diga ( 2003 ) achieved that the harmonisation in ASEAN states would travel on and be based on IASB ‘s criterion. In add-on, IASC had advantages as a planetary standard-setter to be a major impact in some emerging states which moved from Communist to capitalist economic sciences. In the Continental Western Europe and Japan type, IASC has achieved limited success. Some states considered IASC as a Trojan Equus caballus seeking to bring down the accounting criterion in EU. Some companies in Switzerland chose IASs for their fiscal statements, and until 1994 IASs were used by several big companies all over Europe. The last type of states including United States, Canada, the United Kingdom, Australia, South Africa and Netherlands seems influence the IASC. Furthermore, IASC could be considered as a successful organisation as it had a support from IOSCO and EU committee in 2000. Nevertheless, IASC has accomplished their aims.


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