Question & Answer: Do you think it is appropriate to have a single, global set of accounting standards? And even if there was, would it be possible to have similar f…..

The international accounting standards (IAS) were an older set of standards stating how particular types of transactions and other events should be reflected in financial statements. In the past, international accounting standards were issued by the Board of the International Accounting Standards Committee (IASC); since 2001, the new set of standards has been known as the international financial reporting standards (IFRS) and has been issued by the International Accounting Standards Board (IASB). Although IASC has no authority to require compliance with its accounting standards, many countries require the financial statements of publicly-traded companies to be prepared in accordance with IAS

International Accounting Standards – IAS

The concept of converging accounting standards started in the 1950s economic integration and related increases in c ross-border capital flows. Initial attempts to converge focused on harmonization, or reducing differences among the accounting principles used in major capital markets throughout the world. By the 1990s, harmonization was replaced with convergence — the development of a unified set of high-quality, international accounting standards used in all major capital markets and elsewhere.

The IASB’s mission is developing the IFRS and bringing financial markets transparency, accountability and efficiency worldwide. A monitoring board of public authorities oversees the nonprofit organization and serves the public interest by fostering trust, growth and long-term financial stability for the global economy. The organization’s governance and due process keep its setting of standards independent of special interests while ensuring accountability to stakeholders around the globe.

With the emergence of International Financial Reporting Standards (IFRS), most discussion of the proposed convergence of U.S. generally accepted accounting principles, or GAAP, and IFRS standards has focused on the effects this would have on large multinational companies. However, these proposed changes have repercussions for small business as well. Learning about the specific advantages of a single set of global accounting standards for small business can help you better understand how these proposed changes could affect your small-business financial reporting and your evaluation of potential investments.

Comparability

The biggest advantage of a single set of global accounting standards is the enhancement in comparability between companies in different countries. Currently, accounting standards can differ greatly between countries. Before an investor can compare two potential investments, she must reconcile the two companies to the same basis of accounting. The problem is similar for creditors: When evaluating a company’s creditworthiness, differences in accounting standards can make two companies that are in similar economic shape appear very different. Enacting a set of global accounting standards would put comparisons on equal footing, making it easier for small-business owners to evaluate international options for investment and cash management. Right now, many small-business owners do not have the resources to effectively compare international and domestic investment options. If financial statements were more comparable, owners would be able to complete more of these comparisons in house.

International Expansion

Moving to a single set of global financial standards would also ease barriers to expansion for companies. If companies wish to expand overseas today, they need to consider international costs of compliance, which could mean adopting a completely new set of accounting records to meet requirements in the new country. In some cases, this would nearly double the company’s accounting costs. For many small businesses, even the large rewards of moving overseas are dwarfed by these expansion costs.