HARMONIZATION

Barriers to Harmonization in Financial Reporting



4FB652 Advanced Financial Accounting

“The desire by the International Accounting Standard Board (IASB) to harmonize accounting is the triumph of hope over experience”.

Discuss the above statement referring to the possible barriers to the harmonization of financial reporting.

Ever since the Norwalk Agreement has been signed, FASB and IASB continue to collaborate in obtaining a single set of accounting regulations, which can serve for practical accounting purposes. As globalization implies the existence of unique financial reporting standards, one can state the importance of harmonizing international accounting regulations. The relevance of this research consists mainly in its contribution to international accounting, by establishing the harmonization level in the European Union concerning accounting practices, for the particular case of intangible assets. Therefore, measuring material harmonization for companies activating in Europe, assumes in fact performing an analysis on an aggregate of accounting policies, which in turn concurs to the development of accounting field.

Emerging the globalization process, it seems accounting standards harmonization encounters an expansion in the whole world, reducing divergence between different states' regulations. In this context, international harmonization is given considerable attention, as it would lead to simplified procedures regarding financial reporting, so that those who develop the mentioned documents, as well as their users, will not have to comply with more types of accounting standards and laws.

Defining Harmonization

To begin understanding the phenomenon, harmonization is defined as a process of increasing the compatibility of accounting practices set of processes by which differences in financial reporting between countries can be reduced. One must keep in mind that it does not aim for complete uniformity in practice. In an attempt to study accounting harmonization in the public sector, some authors define the harmonizing process, as being opposite to diversity and variation, or by expressing a decrease in contradictory rules and thus resulting in obtaining a higher comparability degree for financial reporting. Other scientists have chosen to present harmonization in contrast with standardization, by mentioning its realistic nature and trend towards a state of harmony. The study conducted by Chand and White, reveals the differences between harmonization and convergence, the second finalizing with IFRS adoption. According to them, the path to an 'accountable world' is reached through harmonization or convergence, as a premise for a unique set of financial reports (Baldwin & Krugman, 2004).

Accounting literature identifies a need for international harmonization in this field, emerging especially from practice, where diversification of countries' regulations may interfere with the way financial information is perceived by its users. However, according to various researchers, harmonizing accounting practices should not be seen as main purpose of organizations regulating this filed, as it influences a countries' national identity in terms of accounting regulations.

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