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The main purpose of this report is to point out the main advantages that could be benefited from International accounting and the obstacles to the harmonization of this system. The history of accounting began 600 years ago when first accounting records were found; the system of bookkeeping pair was gradually introduced in the early 14th century in some trading centres in Italy. After that due to increasing trade around the world people from all regions started to do book keeping and in different timeâ€™s different committees, joint stocks and mechanisms were found to do international level trading. As the world developed more there was a need of a system for dealing with international finances therefore in June 1973 International Accounting Standards Board Committee (IASC) was established as a result of the agreement made between accounting bodies in Australia, Canada, France, Germany, Japan, Mexico, Netherlands, England, Ireland and the United States, and these countries were IASC Board at that time. IASC operated from 1973 to 2001 until it evolved into IASB (International Accounting standards board). IASB possess advantages that can benefit the whole world but there are obstacles to the harmonization of international accounting, both advantages and obstacles are listed with details in the report. The report then moves on to the three issues that may arise in relation to the provision of relevant and reliable information in financial statements such as both of them are related to each other that the emphasis on one will hurt the other. And in the last part of the report the qualitative characteristics of financial statements such as timely, relevant, reliable and comparable as defined in the Framework are explained and discussed.
Main advantages in harmonization of international accounting
There are many advantages linked with the harmonization of international accounting. Main of them are listed and explained below:
The economy of the world can be benefited by more educated decisions which could result in the improvement of global economic growth.
The accounting information can be explained by the experts, this would reduce the risk of investment.
By adapting international accounting the companies and industries could increase the ability to compare with similar companies and industries and make investment decision with more intelligence.
Harmonization of international accounting would facilitate entrepreneurs and financial experts from all over the world to invest internationally.
It would reduce the cost of reconciling account information for multi-national companies.
Stock exchanges from all over the world could benefit from the standardization of international accounting, as more companies begin to adapt the international standard, they will become more eligible for listing.
Obstacles in harmonization of international accounting:
Despite of useful advantages of international accounting, there are barriers which prevent harmonization of international accounting from exceeding; some of them are as following:
Different countries have different accounting methods that are regulated in different degrees by their government.
Another issue is that many capital markets have adjusted into the international business without International accounting and they believe that present system is working well enough and International accounting would only complicate things.
Naturalism is another threat to harmonization of international accounts as countries are wary of ceding control of their accounting regulation to outsiders.
Poor countries believe that harmonization of international accounting is an implantation of standards by powerful countries.
IASB (International Accounting Standards Board):
IASC (International accounting standards board Committee) was established in 1973 which evolved in IASB (International accounting standards board) in 2001. IASB is an independent regulatory body based in U.K. It has 15 members from 9 countries each with various functional backgrounds. The board aim is to develop a single-set of high quality, understandable, relevant, comparable and enforceable global accounting standards. IASB presented four frameworks; first and second in 1989, third in 2001 and the fourth and present one in 2010. The framework of IASB describes the basic concepts of preparing and presenting the financial statements for external users. The qualitative characteristics of financial statements according to IASB frame work are following:
Issues in provision of relevant and reliable information
Relevance and reliability both are essential for the better quality of the financial information but both are related to each other in such a way that effect on one will hurt the other and vice versa, for example accounting information is relevant when it is provided in time but in initial stages it is not very reliable but as it becomes reliable with time it does not remain relevant. Second issue with the provision of two qualities is that the two qualities are not independent of each other, that is, perceived relevance by users is dependent on the perceived level of reliability. The third problem is that the level of reliability cannot remain or increase with the introduction of fair value measurement; as such, the discussion has assumed the presence of a relevance reliability trade-off i.e. the move to relevance is decrease to reliability.