Adapting International Accounting Standards Essay

1430 words - 6 pages

Companies in each country have to adapt and regulate their financial statements to certain requirements. They base and format their accounting standards on their national General Accepted Accounting Principles (GAAP) set by security regulators. However, in this modern globalized era, owing to too many financial differences between nations, it is increasingly difficult for entities to compare their financial records and identify trends in their financial position and performance with their competitors.
As an answer to such financial chaos, harmonisation consists of formulating one universal GAAP; accountants worldwide would subsequently be able to use one single standardized practice, which would, according to Weber (1992), improve financial market information, government accountability, facilitate international transactions and minimise exchange costs.
However, harmonising standards remains a disputable answer in accounting. This paper will attempt to shed some light on the current debate about the pros and cons of adopting a universal set of accounting standards.

International accounting standards are discussed, set and published by the International Accounting Standards Board (IASB) which was formed in 2001. The International Accounting Standards Committee (IASC) was the predecessor of the IASB; its Foundation is to harmonise all worldwide GAAPs into one single set of accounting standards. According to Mogul (2003), harmonisation is defined as the constant process of ensuring that the GAAP of each country are formulated, aligned and updated to international best practices (GAAPs in other countries) with suitable modifications and fine tuning, considering each domestic condition.
Harmonisation is thus wished by any financier. By harmonising international accounting standards, the latter will provide universal accountability and will add international credibility to entities, governments, financial markets and economic policy-makers. Weber (1992) points out that:
“International investment decisions and financial-based management decisions are then made with less risk. [...] Regulators and auditors will be receiving the same information, facilitating the evaluation process. [...] International accounting standards will allow nations' tariffs, quotas and other trade restraint mechanisms to be more accurate and less risky for those engaged in trade.”
The universal set of accounting standards can thus be understood by anyone around the accounting world, especially multinational entities who have subsidiaries in various countries. Indeed, when these subsidiaries write up financial reports using the domestic accounting standards and regulations of the country they are currently in, they need to convert the latter into a different operation framework in the market where the mother company is listed. ExxonMobil and HSBC are perfect examples of such complexity as they operate in forty and seventy nine countries, respectively. Harmonising the...

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