Advantages and limitations of harmonizing International Financial Reporting Standards throughout the world

The improvement in international commerce and capital flows that has occurred over the earlier twenty years has increased the need to harmonise accounting requirements across the globe. The enchantment of international accounting harmonization has been extensively discussed. Numerous academics Ali, J M (2005), Adhikari and Tondkar (1992), Saudagaran (1997) argue that adopting International Financial Reporing Standards (IFRS) would bring great advantages to society, corresponding to comparability of statements between nations, progression and development of capital markets and communication and relationships between multinational corporations. It has also been debated by some Blake (199O), Nair and Frank (1981), Nobes and Parker (2004 ), Arpan and Radebaugh (1985), Deegan (2005) that with the rewards gained from harmonization come some obstacles; economic penalties, nationalism and the lack of professional our bodies.

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One of essentially the most useful features that may come from harmonization could be the comparability of international financial info. Currently there’s great misunderstandings about the international financial statements, enhancing comparability would remove this issue and it will also get rid of one of the vital barriers to the move of international funding.

Global harmonization would save time and money that is presently being spent on uniting differing monetary data when a couple of set of reports is required to comply with the totally different national legal guidelines or follow Blake (1990). It may even improve the tendency for accounting standards all through the world to be raised to the best potential stage and to be consistent with native economic, authorized and social circumstances. Having one worldwide accounting language is helpful for the worldwide comparison of statements and understandability.

Unifying accounting standards would also assist the development and enlargement of capital markets. Ali, J M (2005). In the final two decades the growth in capital markets has been very dramatic. This enhance has led to a variety of issues. One concern is the variance in accounting disclosure standards and practices worldwide, which is regarding for a variety of different teams Adhikari and Tondkar (1992). IFRS would allow overseas investors, monetary analysts and overseas lenders to have a greater understanding of the financial statements of various international companies and they would be succesful of examine the funding alternatives which is ready to assist them to make the best funding decision. The group that might profit the most out of the harmonisation of accounting standards would be the Multi-national companies (MNC’s) as the communication of financial info within the groups would turn into easier. With the harmonization of reporting requirements it might be simpler for MNC’s to fulfil the disclosure requirement for stock exchanges around the globe. Many of the brand new overseas investment by MNCs is taking place in developing countries and at the similar time that there has been a sharp decline in new investments in industrialized nations Saudagaran (1997).

This signifies that due to the outstanding differences between financial reporting MNCs have to create quite a few consolidated financial statements in regards to the laws for every separate nation. To do this it takes a substantial amount of time and resources, this downside can be eradicated by the adoption of IFRS. A subject of debate is whether or not or not the accounting regulators take the issue of financial consequences under consideration when deciding on whether or not to undertake the IFRS. Many firms do not take on the change as bringing become their accounting standards will increase prices. This resistance could occur with the harmonization of accounting requirements Blake (1990). Nair and Frank (1981) said “national accounting group would lobby in this trend so as to reduce the costs associated with changing to a brand new normal, or to avoid stigma of noncompliance if it chooses as an alternative to disregard the new international standard”. It is also discussed that accountants could lose their credibility if they’re to answer to the economic penalties pressures while additionally it is discussed that it is a very important matter if accounting laws are to command common support.

Blake (1990) offers evidence of how accounting commonplace setters have been influenced by financial consequence points in different nations. Economic consequence issues could trigger diversity of accounting practices as a result of they are a results of the national cultural and regulatory framework. One of the obstacles for harmonization may be nationalism. Nobes and Parker (2004) advocate that nationalism will trigger a refusal to simply accept accounting standards that’s to be developed by other nations. Each nation follows the belief that they’ve in place the better system and that different international locations accounting requirements are of an inferior nature Arpan and Radebaugh (1985). Some international locations which have faults and inadequacies inside their standards will chose to not undertake the IFRSs as they’ll benefit from these ineffiecies. An instance is given by Carlson (1997) who acknowledges that governments might view attempts by the IASC to change nationwide accounting rules as infringements upon national sovereignty. Developing nations and people which have been colonies of imperial powers are particularly delicate to intrusions. Wallace (1990) identifies three causes in favour of survival of the IASC/IASB, together with the rising internationalization of enterprise and finance, the composite nature of its standards, and the absence of rival in the growth of world accounting requirements. Another political obstacle that will come up, which is discussed by Nobes and Parker (2004) is that there are several nations that are not within the presence of strong practiced accounting bodies.

The IASB wanted to work through national accountancy our bodies however this is a matter as they are not all international locations have effective bodies. The IOSCO came forth with the suggestion of the adoption of IASB standards as an appropriate foundation for the preparation of economic statements to member exchanges throughout the world. This implies that an organization looking for itemizing abroad does not have to regulate its reviews to fulfil the precise national requirements if the stories are already in settlement with IASB standards Deegan (2005). The want for the harmonization of IFRS is unquestionably evident. As discussed earlier there are a great number of benefits that might come up from this development. To provide a professional, growing and robust accounting environment it will be needed. Despite the benefits there are a number of barriers and hurdles that need to be overcome to be able to bring about the harmonization of worldwide accounting requirements. In order to make sure the uniform software of accounting standards throughout cultural and political boundaries IASB wants to make certain that there are strong audit practices and honest values utilized so as to deliver concerning the integrity of the requirements.