In today's financial world, many companies rely on globalization to find success. This is no secret as more and more companies operate internationally. Accordingly, each country has different accounting standards to which the company has to follow. This is a problem for these international companies because they are now reporting reports based on the accounting standards of the countries they run. The solution of this problem is called accounting standard harmonization. This harmonization is defined by "a political process that seeks to reduce the differences in accounting practices in the world in order to achieve compatibility and comparability" (Hoarau 1). This solution would include standardized accounting standards that each country should follow. On the surface, this solution seems to be a perfect solution, but unfortunately this is not the case. Although the harmonization of international accounting standards has clearly been upward, there is a disadvantage as well. This paper presents the advantages and disadvantages of accounting standard harmonization.
The benefits of harmonization include the comparability of financial statements between international companies and countries. This has a number of advantages for working companies and countries using standardized rules. One of the benefits is that investment in international companies becomes easier. Companies can easily compare with each other and reduce investment risk. This leads to more investment and economic recovery for both the country and the companies. Another advantage is that emerging Third World countries can accept new standards without starting their own process of creating themselves. This process can be costly and time-consuming, but it is not a problem with harmonization. It also reduces the cost of international companies as it would not need to "consolidate different financial information if more reporting is required to comply with different national laws or practices" (Turner 1). This allows companies to take the money they spend on these different financial statements and reinvest them into their company.
The idea of harmonization also seems to have some disadvantages of this concept. The first is linguistic and cultural barriers for each country. Translating the standard accounting system of accounting principles into every language would be extremely difficult as the languages are not translated exactly to each other. Another disadvantage of harmonization is that each country is trying to accept the established standards. As each country believes that harmonizing accounting standards, "diluting the quality of their financial reports" (Roy 1), this will be an increasingly difficult task. Currently, each country has different standards for different views, such as the amount of publication. It would be very difficult for countries to reach an agreement. Adopting new accounting standards would also be costly for small businesses in smaller countries, which now need to find adaptation to new standards.
The idea of creating a single accounting standard for all countries seems to be an extraordinary idea, but as we have seen, there are disadvantages and disadvantages. The benefits include the comparability of financial statements of companies operating in different countries and the availability of smarter and better investment. However, the disadvantages are that creating these standard rules would be extremely difficult. Translation of the different languages and the different countries' priorities is what makes it difficult to implement. Obviously, globalized accounting standards serve the benefit of everyone, but the most important problem is to create effective standards for everyone.
Hoarau, Christian. "American hegemony or mutual recognition with metrics?" European Accounting Review 4.2 (1995): 217-233. Business Source Premier. Web. November 19, 2014
Roy, P. Norman. "International Accounting Standards – Why bother you?" Financial Executive 11.6 (1995): 1. Business Source Premier. Web. November 19, 2014
Turner, John N. "International Harmonization: Professional Purpose." Journal of Accountancy 155.1 (1983): 58-66. Legal Collection. Web. November 19, 2014
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