On an international scale, harmonisation aims to update, align or even replace domestic standards with a high quality set of international accounting standards issued by the IASB. Reducing differences in financial reporting between various countries would benefit a wide variety of users in understanding and comparing accounts on a much larger geographical scale. However there are numerous obstacles discussed which can hinder the speed and completion of harmonisation.
Table of Contents
1. INTRODUCTION
2. REASONS FOR HARMONISATION
3. IASB'S AND EU'S APPROACH TO HARMONISATION
4. OBSTACLES TO HARMONISATION
5. DEVELOPMENTS TOWARDS THE IASB'S GOAL
6. CURRENT STATE OF HARMONISATION
7. CONCLUSION
Research Objectives and Key Topics
This paper examines the ongoing global effort to harmonise international accounting standards, specifically focusing on the initiatives of the IASB, the role of the EU, and the significant challenges posed by varying national requirements and the resistance to adopting a single set of standards.
- The role of the IASB and EU in global accounting standard-setting.
- Economic and practical benefits of harmonisation, such as market efficiency and improved comparability.
- Barriers to harmonisation, including cultural differences, legal systems, and the "rules vs. principles-based" debate.
- The impact of US accounting practices and the ongoing convergence projects between the IASB and FASB.
- The influence of financial crises and corporate scandals on accounting regulation.
Excerpt from the Book
Obstacles to harmonisation
However numerous obstacles, existing due to the natural differences between countries, hinder the speed and completion of harmonisation. One set of standards may not suit everyone’s needs, requirements and characteristics. The main elements influencing national GAAP are culture, legal systems, religion, tax systems, business ownership, financing systems, influence of the accounting profession and the rules v principles-based approach to standards.
A predominant obstacle between the FASB and IASB harmonising is their contrasting approaches; whereby rules-based standards are very detailed, complex and rigid rules compared to principles-based standards which provide guidance and encourages professional judgement. The intricacy of rules-based standards allows manipulation which can be justified as compliance (Nobes and Parker, 2010), whereas the principle approach focuses on portraying the economic substance of a transaction.
The Norwalk agreement was a significant step towards harmonisation highlighting the FASBs attempt to move towards the principles-based approach of the EU (Mogul, 2003). This satisfies a Sarbanes-Oxley objective whereby the SEC was obliged to consider a principles-based system operating in the US environment, after Enron damaged the perception of the US having high quality standards (Deegan and Unerman, 2011).
However the fear is that the IASB may be lobbied by the heavily influential US into complicating their standards as they harmonise. For 70 years the US has created detailed standards responding to its complex business environment (PriceWaterhouse Coopers, 2011). These may suit the US, however they may be unsuitable if imported and enforced on all countries adopting IASs (ibid). The Hong Kong Stock Exchange worries that the new standards are too complex and costly (Jones, 2011). The IASB must consider the needs of its varied users, setting additional hurdles for harmonisation.
Summary of Chapters
INTRODUCTION: Defines harmonisation as the process of increasing the compatibility of accounting practices globally and outlines the potential benefits for users.
REASONS FOR HARMONISATION: Explains how globalisation, increased foreign investment, and the need for meaningful financial comparisons drive the demand for a unified set of international standards.
IASB'S AND EU'S APPROACH TO HARMONISATION: Discusses the transition from IASC to IASB and the strategic role of the EU in mandating compliance to improve market efficiency and competitiveness.
OBSTACLES TO HARMONISATION: Analyzes the structural and cultural barriers to global convergence, including the fundamental conflict between rule-based and principle-based accounting systems.
DEVELOPMENTS TOWARDS THE IASB'S GOAL: Outlines significant progress, such as the Norwalk Agreement and the SEC's move to permit IFRS-compliant reports, in achieving global harmonisation.
CURRENT STATE OF HARMONISATION: Reviews the current adoption status of IFRS in over 120 jurisdictions and the challenges remaining in completing the convergence projects with the FASB.
CONCLUSION: Summarizes that while significant progress has been made, inherent environmental differences among nations continue to act as major obstacles to achieving true global harmonisation.
Keywords
Harmonisation, IASB, FASB, IFRS, Accounting Standards, Globalisation, Convergence, Financial Reporting, Principles-based, Rules-based, Market Efficiency, Comparative Accounting, US GAAP, Financial Crisis, Standardisation.
Frequently Asked Questions
What is the core subject of this paper?
The paper explores the global movement to harmonise accounting standards, focusing on the efforts of the IASB to create a unified framework and the various challenges that impede this goal.
What are the central themes of the work?
The central themes include the international drive for comparability, the impact of globalisation on financial reporting, the influence of regulatory bodies like the EU and SEC, and the conflict between different national accounting philosophies.
What is the primary objective of the research?
The objective is to analyze the progress and obstacles associated with the IASB's quest to implement a single set of high-quality global accounting standards.
Which scientific approach is utilized?
The author uses a literature-based analytical approach, synthesising academic research and professional reports to evaluate the current state of global accounting harmonisation.
What does the main body cover?
The main body examines the history of harmonisation, the role of major institutions, the specific technical and cultural obstacles to progress, and key milestones such as the Norwalk Agreement.
Which keywords best describe the research?
The primary keywords include Harmonisation, IASB, FASB, IFRS, Convergence, and Financial Reporting.
How does the "rules-based" versus "principles-based" approach affect harmonisation?
The document explains that the clash between detailed, rigid rules (often favored in the US) and flexible, principles-based guidance (promoted by the IASB) creates a significant hurdle, as these systems rely on different interpretations of transaction substance.
What impact did the Enron and Lehman Brothers scandals have on accounting standards?
These scandals highlighted the failures of existing national regulations, leading to calls for better oversight and a move away from rigid, loophole-prone standards toward more principled approaches that focus on economic transparency.
- Quote paper
- Louise Franklin (Author), 2012, Harmonisation - The desire by the IASB to harmonise accounting is the triumph of hope over experience, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/202064
