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In present day and age, the accelerated path of globalization brings huge effects on a multitude of areas, including the global economy and the international market. Due to these influences the development of international financial reporting standards has a trend toward globalization. A single framework of financial reporting standards will be extremely beneficial in modern commerce, the economy and particularly for international entities reporting in more than one national jurisdiction. The convergence of the accounting system can lower the cost of cross-border financing, advance the level of reliability and comparison, and bring companies a global accounting condition (Paul, 2007: 4). The process of these international financial standards goes through the procedure of reducing national differences, harmonization and standardization. Seeing the dramatic trend moving to international convergence, this essay will present the conception, motivation and obstacle of convergence, and the significant work done by the international bodies.
2. The conception of harmonization international convergence
According to Shahrokh M. Saudagaran (2009: 39), 'harmonization, in the accounting context, may be defined as the process aimed at enhancing the comparability of financial statements produced in different countries' accounting regulations'. Harmonization aims to establish a uniform structure or procedure with some acceptable differences. To some extent harmonization is the foundation of convergence.
In order to fully understand harmonization, and distinguish it from standardization further explanation is needed. As Leandro and Araceli (2000: 6) pointed out that standardization implies uniform standards in all countries that participate in the effort, and it is a process towards uniformity. However, harmonization implies a reconciliation of different points of view and permits different requirement in individual countries provided that there is no logical conflict, and it is a process toward convergence. It implied that ' harmonization is a more realistic and conciliatory approach and seems more attainable than rigid standardization'.
In 2001, the International Accounting Standards Board established the idea of international convergence (Boka, 2010). The basic integration of this global convergence of accounting standards is: when dealing with essentially the same business procedure, the accounting process and strategy should be the same no matter where and when it happened. It is an inevitable result of the expansion in the number of multinational enterprises, transnational investments and the internationalization of the capital market. With the help of harmonization the process of international convergence can be achieved more easily. Global convergence is the path from different standards to a universally suited framework.
The factors that drive towards international convergence
3.1 Multinational companies
As accounting is a " language of business", multinational companies need the help of accounting information systems to operate and manage their businesses. If different subsidiary companies use different accounting standards, it will then bring many obstacles in consolidating, analyzing and using financial statements, and increase the transaction cost. On the other hand, a fully developed international financial reporting standard is a form of language, which will definitely decrease the risk level of international investment and financial management decisions.
3.2 The stock exchanges and the securities industry
Many stock exchanges contain a high percentage of foreign companies. In an article by Shahrokh (2009), 'The London exchange had 719 foreign firms listed in 2007. Similarly, foreign firms represented significant portions of the total listings on the Mexican (66 percent), Singapore (38 percent) and Luxembourg (87 percent) stock exchanges'. Therefore, stock exchanges and securities industry make every effort to pressure for a single set of high quality international framework. By using this type of international financial reporting framework, the foreign companies can reduce the cost of cross-border listing of securities, increase the transparency and comparability of financial information, and promote the development of these national capital markets.
The financial crisis
In 1997, the outbreak of the Asian financial crisis accelerated the pace of international convergence of accounting standards. According to a survey (2003), the use of international accounting standards, resulting in failure to provide timely financial statements with useful information to help users of accounting information and severely reduced the transparency level was one of the important factors. Similarly, the financial crisis happened in 2007, triggered the pressure for a single framework of financial standards.
Obstacles in harmonization and convergence process
Complete harmonization and international convergence is difficult to achieve and as Samir (2003:683) stated that 'there would always be certain differences to take into account the nature of business and services, economic financial considerations prevalent in each country'. Due to the substantial cultural and economic differences of different countries, the degree to which the government is involved in standard setting process varies from country to country. For example, in China, the government believes this is their responsibility to set standards. However, in the UK, professional organizations exercise the standards. Particularly in the current economic environment, there are differences in the level of industrialization, inflation and the development of economies. These factors result in the fact that one nation's accounting standards may not be suitable to other countries. The small and medium-scaled companies and the multinational companies need different accounting standards. In addition, the accounting needs of developing countries also differ from developed countries. Further, as Nobes & Parker (2002: 75) pointed out the main obstacles of global convergence contains: 'the size of the existing differences between the accounting practices of different countries, the lack of strong professional accountancy bodies in some countries, and the differences in political and economic systems. These subjects are being solved under the progress of harmonization and convergence. The following section of this article will address how these issues are untangled.
The trend from multiple standards to a single framework
According to the development of historical events that related to national and international standards, there is a trend from multiple standards to a single framework. During the 20th century, there was a high degree of variation of financial reporting standards. Among them the most influenced ones are the International Accounting Standards Committee, Financial Accounting Standard Board and the European Union. From the 1970s, these bodies were working for harmonization of accounting practices and disclosures.
5.1 International Accounting Standards Board
International Accounting Standards Committee, the predecessor of the International Accounting Standards Board, was formed in 1973. It has established 41 international accounting standards, makes a great contribution to the international financial standards and harmonization. With the support of International Organization of Securities Commissions (IOSCO), they have been cooperating on harmonization since July 1995. A major step toward the acceptance of IASs is that the IOSCO approved 30 financial statements of IASC and recommended its members permit the use of IASs (Chris, 29/09/2010).
At 2001, the International Accounting Standards Boards (IASB) replaced the IASC, which is becoming 'better funded, better staffed and more independent' (Ray, 2006:6). This conversion is a remarkable path leading the international accounting standards to a more influenced global body. As stated by the International Accounting Standards Board, its principal objectives are:' first, to develop a single set of high quality, understandable, enforceable and globally accepted International financial reporting standards (IFRSs) through its standard-setting body, the IASB; second, to promote the use and rigorous application of those standards; third, to take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); last, to bring about convergence of national accounting standards and IFRSs to high quality solutions' (IFRS, 2010).
From these objectives we can conclude that its ultimate goal is to develop a single framework of financial reporting standards that can benefit the economy internationally, particularly useful for decision-making in modern commerce. Based on a survey carried by the BDO, Deloitte Touche Tohmatsu, Ernst & Young, Grount Thornton, KPMG and Pricewaterhouse Coopes (2002) reveals that 'the IASB is viewed as the appropriate organization to develop a global accounting language that provides high-quality financial information and enhances transparency'. According to the survey carried in 59 countries, there exists 95 percent of them either have adopted or intend to converge with IFRS.
5.2 European Union
European Economic Community was established in 1957. According to the article 2 of the Treaty: The objective of this community is to establish a common market and promote a harmonious development of economic activities. In order to achieve this goal, a high quality single framework is needed. A report named " an examination of the conformity between the international accounting standards and the European Directives" indicated that 'there were few major differences between the IASs and the Directives'. (Barry Elliott and Jamie Elliott, 2008:143) this ensured the adoption of international accounting standards.
Since 2005, The European Union had fully adopted the international accounting standards, which can be viewed as a pivotal part in the sage of global convergence; all the listed companies are required to comply with the standards. The main reasons for the EU's acceptance of the standards are listed as follows: first, the developed countries within EU, such as France, Germany and Italy, are already being the members of ISAB, which will lower the obstruction of this process. Second, the cost of set a new framework by EU will be far huger than simply adopting the IFRS. Last, after the uniformity of Euro, a single set of framework of financial standards can promote the economic communication within EU. After this acceptance, as described by Anton and David (2004) one set of standards is acceptable in more than one hundred jurisdictions---'a revolution in the truest sense of the word'.
USA changed the attitude
The comparison between IASB and FASB
Since 1973, the Financial Accounting Standards Board (FASB) has been working on establishing standards of financial accounting to govern the preparation of financial reports by nongovernmental entities.
Compared with the international accounting standards, two standards have in common is: First, both of them are private institutions, founded by enterprises and professional organizations develop accounting standards; second, their establishing procedures are similar. They both need to be subject to a large amount of research, advices and voting to approve such procedures. Besides, high level of transparency is both their essence; third, they produced similar principles has the same objective toward international convergence, which made the image of single framework being possible.
The differences are listed as follows: First, they aim to different areas; IASB is a global standardized board, however, the U.S. accounting standard mainly based on the development of U.S. economic activity and apply only to the United States; second, they use different basis, IASB is the "principle-oriented" accounting standards, emphasizing on substance. U.S. ingests "rules-oriented" accounting standards. IASB is user-friendlier, has lower transaction costs, and welcomed by other countries.
'Today, the path toward that goal is the collaborative efforts of the FASB and the International Accounting Standards Board to both improve U.S. generally accepted accounting principles (U. S. GAAP) and International Financial Reporting Standards (IFRS) and eliminate the differences between them' stated by the FASB (2010).
As the USA is the only super nation in the world, it influences multitude areas, not only the economy area, but also the political area.
Between 1973 and 1995, US Securities and Exchange Commission and the accounting professions did not pay much attention to the IASC. Following the compromise of the progress IASC, the USA started to change the attitude. In addition, In an article written by Sarah (2005:13) mentioned that 'as In Enron's wake, the US accounting authorities demonstrably warmed to principles-based standards and, consequently, to the IASB's standards'. In 2002, the commission adopted two criteria for a collaborative project and carry out substantive cooperation to the maximum extent unified the United States and International Financial Reporting Standards.
5.4 The compliance in other countries:
According to Christopher and Robert (2008:278) the financial reporting standards in china have been transformed due to the economic reforms. Chinese Accounting Standards (CAS) consists of one basic standard and 16 specific standards with integrate the of IFRS principles into CAS (Barry and Jamie. 2008:147). The approach in China is viewed as one big bang. Compared with China, the progress in Japan is working towards a June 2011 date of implementation (John, 2010). Japanese companies still use Generally Accepted Accounting Principles (GAAP). Ikuo Nishikawa, Chairman of the ASBJ, said, "we will continue to cooperate with the IASB to develop high-quality, international accounting standards (John, 2010)".
In summarize, along with the accelerated development of globalization and market internationalization, the demand for the harmonization of accounting and financial reporting frameworks and related standards are very imperative. Even though obstacles exist, IASB and other standards setting bodies are working together to achieve international convergence. Especially, The step of convergence has increased significantly among IASB, FASB, ABSJ and other bodies. The recent survey carried by the American Institute of Certified Public Accountants (AICPA) (2010:11) indicate that companies will need four to five years' preparation moving to international standards. Unquestionably, a single set of high quality international accounting standard will be achieved sooner or later.