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 financial reporting all over the world?
In terms of IFRS
1000 words (+/- 10%)
The business across the globe is increasingly globalizing at a rapid speed. Investment markets are expanding, to invite the cross border investments. Accounting the logical glue that holds the confidence of investors and other stakeholders in understanding current and future prospects of a business entity. When the shareholder is investing beyond their economic territories, naturally they have certain concerns regarding accounting policies and conventions governing the financial reporting frame work in nondomestic territories.
Internationalization of financial markets increases the perfection of capital markets by a true matching of demand and supply for capital around the world.
Role of IFRS
International financial reporting standards is an attempt made to standardize the accounting practices across the counties.
1) The main objective of the IFRS Foundation is to bring transparency, accountability and efficiency to financial markets around the world.
2) The inconsistency among the GAAP among the member counties of IASB (International Accounting standards board ) can be eliminated though the release of IFRS only.
3) IFRS is also responsible for continuous monitoring and modifying the applicability of the standards considering the special requirements of the developing countries.
4) Educating the accounting practitioners and investors on the need for standardization should achieved by IASB.
IFRS was originally initiated in the European Union, for making accountancy a global business language so that understandability and applicability increases it’s application scope across world. Still to day IFRS had been flexible enough to make changes to suits to the needs of various counties individual GAAP ( Generally Accepting Accounting Practices). Taking case of US, United States has not yet adopted IFRS. However the disagreements between IFRS and American GAAP. are minimizing over the years and when SEC decides that IFRS are fit for American investment practices it will become truly global.
Possibility for global Standardization
Even though globalized standards are need of the hour, major problem arises when member country representative body believes that their standards are golden and IFRS can directly adopt them. Especially with developing countries where easy way of computations and use of averages rather than accurate measurement had been in practice for many years and sudden change cannot be supported due lack of availability of quality accountants who can implement IFRS requirements. Ease of understanding and computing is preferred then true and fair presentation with complicated computations for reporting purpose.
The proponents of this idea argue that a uniform set of global accounting standards, supported by strong corporate governance, independent standard-setting and a sound regulatory framework, could benefit investors and businesses alike. Others suggest that trying to establish a uniform set of global standards would run the risk of overlooking the unique economic, political, cultural, legal and regulatory realities that exist in different nations and regions across the globe.
So, IFRS had to go a very long way in this endeavor of standardizing multiple accounting practices and bring about common understanding among the member countries. Currently agreement among the member countries is based in separate issues such that a new IFRS is issued when ever the account transaction or event upon which acceptance is received from members. Thus convergence to IFRS among the member countries will increase in coming years when acceptance is increased on many pending issues with IASB.
Thus we can conclude that currently the speed of convergence with IFRS is slow, it will take a rapid change and world wide acceptablility, as soon as US adapts it. Current developments and changes coming in IFRS and US GAAP are working towards convergence.