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The Need For Harmonising Accounting Standards.

1804 words - 7 pages

International capital markets demand financial statements that can be readily understood and compared irrespective of the country of origin of the companies concerned. Investors and their advisers, and financial analysts want financial statements that are comparable from country to country so that they can compare the financial statements of enterprises in various cities. Instead, they are often confused and even overwhelmed by the diversity of different national reporting requirements.

Several reasons exist for why there are differences in accounting standards among different countries. Some of these include the complexity of accounting in individual countries, the economic and legal framework of the countries themselves, cultural differences among nations and from their historical developments, amongst others (Gottlieb 1996).

We now have a global economy and it has affected the entire world. For instance, today's global corporation may have more than one headquarters, and its production and distribution facilities are probably scattered throughout the world. Commodity prices, interest rates and currency exchange values have become internationally linked - with the result that governments around the world are increasingly supporting harmonisation of accounting practices and national policies.

Harmonisation is necessary because standard national financial statements are virtually useless; financial markets in more regulated countries are threatened with a loss of market share; and multinational corporations must prepare multiple reports for different nations they do business in (Nobes & Parker 2004).

There is a need for harmonisation of accounting standards in order to help the foreign investor to understand the financial statements of the foreign companies whose shares they might want to buy. Financial information is a form of language. And if the language of financial information is to be put to use, so that investment and credit decisions can more readily be taken, it should not only be intelligible, it should also be comparable (Iqbal et al 1997).

BENEFITS OF HARMONISATION OF ACCOUNTING STANDARDS.
* The greatest benefit that would flow from harmonisation would be the comparability of international financial information. Such comparability would eliminate the current misunderstandings about the reliability of foreign financial statements and would remove one of the most important impediments to the flow of international investment.

* Harmonisation would save time and money that is currently spent to consolidate divergent financial information when more than one set of reports is required to comply with the different national laws or practice.

* Harmonisation would also improve the tendency for accounting standards throughout the world to be raised to the highest possible level and to be consistent with local economic, legal and social conditions.

* It would be beneficial to those countries which still do not have adequate codified...

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