Essay Example on Harmonization takes place over time and Works

Harmonization takes place over time and works to reduce alternatives while still retaining a high degree of flexibility in accounting practices Harmonization allows different countries to have different standards as long as those standards do not conflict Convergence refers to a diminishing differences in accounting standards and works towards having a single set of accepted standards by regulatory bodies Doupnik 66 67 2 Going back to chapter 1 where it was discussed the benefits of having a universal accounting standard this would also benefit a multinational company A universal standard would save money on translating a foreign entities financials into GAAP for example and would allow for accountants to spend more time on the company and less time on creating multiple financial statements Also this would save the US locations time for accountants in having to learn a new accounting standard if they were to send them overseas Having a universal standard would allow for accountants to travel interchangeably and have only a language barrier to work with instead of also a barrier in accounting standards 4 The first phase of the IASC was the Lowest Common Denominator approach that was from 1973 2001 which focused on 26 generic International Accounting Standards 

The second phase of the IASC was the Comparability phase Which was from 1989 1993 and included the publication of the Framework for the Preparation and Presentation of Financial Statements also known as The Framework in 1989 The second objective of the second phase was to eliminate most of the choices of accounting treatment currently permitted under International Accounting Standards Doupnik 72 73 The third phase of the IASC the IOSCO agreement which was from 1993 2001 The purpose of this phase was to develop a core set of international standards that could be endorsed by IOSCO for cross listing standards 5 The endorsement from IOSCO for the IAS was important to the efforts of the IASC because it worked towards the IASC efforts to create a harmonization process Also the backing of IOSCO allowed for the IASC to become the main accounting standard in the setting of International accounting standards up until the IASB was created Doupnik 73 7 The IASB s principle based approach to accounting standard setting focuses on establishing general principles derived from the IASB framework This approach also focuses on providing recognition measurement and reporting requirements for the transactions covered by the standard This type of approach looked to more professional judgement when applying these principles to transactions Principle based vs rules based allows accountant to use more of their professional judgement instead of relying on knowing rules and constantly referring back to the rules standard to to see if the rule is applicable to the current transaction Doupnik 83 11 

The worldwide adoption of IFRS would help with the comparability of financial statements especially with the convergence of GAAP but would not end up guaranteeing worldwide comparability Given that IFRS is more principle based how certain aspects on a financial statements are presented may depend on the culture of that country the interpretation of certain accountants and the disagreement that may come on certain principles and the stubbornness of certain entities to change their view Although there is no perfect standard and every convergence would come with difficulties like the ones previously stated 89 of countries who converted to IFRS determined it had a big part in the economic growth in their country With differences in culture will come problem with deciding on certain principles but having one standard instead of IFRS and GAAP will lead to less confusion and money spent for multinational companies when it comes to putting out their financial statements Doupnik 92 93 Ex 2 The objective of the EU requiring all companies to use IFRS was to improve the quality of financial statement reporting and increase comparability and transparency Also they wanted to work towards developing and promoting a single capital market in Europe Doupnik 96 The trouble that comes from this objective is the vast differences that there were between countries who weren t using IFRS in the EU An example of the struggle to convert countries to IFRS was made apparent in IAS 39 which included removing provisions related to the use of fair value option and hedge accounting Many countries in the EU felt that this change could damage the credibility of their financial reporting and that this would have adverse consequences for the cost of capital of European companies and their ability to comply with the complete standard issued by the IASB This shows the stinginess that many countries will show by having to change their principles to IFRS and having to change how they present their financial statements Doupnik 97 Ex 15 The reason for this was to cut down on the confusion of having investors trying to decipher an international companies financial statements in a different standard Having two different standards on US exchanges could cause problems for investors in determining if they want to invest in that company Given that the US uses GAAP having a US investor trying to break down an international company s IFRS financial statements would lead to increased frustration and a possibility of lost investors due to the multiple standards