FINANCE

Drivers for Harmonisation of Financial Reporting Standards & Progress Made Till Now

Introduction1

Harmonisation of Accounting Standards2

Reasons for Harmonization of Accounting Standards3

Fast Facts in the Process of Harmonization4

Present Scenario of Harmonisation Process & Future Perspectives6

Harmonized Accounting Standards: Issues and Challenges8

Conclusion8

Reflections9

References11

Drivers for Harmonisation of Financial Reporting Standards & Progress Made Till Now

Introduction

For many years the business world has been enduring national variations in accounting standards; however, more recently there has been a great emphasis on harmonizing financial reporting standards and practices globally for reducing such irregularities. As these significant differences among accounting practices nationwide results in information asymmetry of national investors at expense of foreign ones, this causes unsound knowledge of local environment. Therefore, in order to reduce costs associated with accessing information for decision-making, investors had been demanding for a single set of accounting principles and thereby pushing the regulators to focus on it (Procházka, 2012, p.372; ICAEW, 2011, p.2). Thus, it had been become essential for regulators to develop a universal language of accounting practices and financial reporting.

Variety of primary drivers has been observed that encourage global harmonization of financial reporting, such as increased globalization of capital and trade markets. In addition, the rapid advancement of IT has led to the easy movement of electronic funds across the globe and thereby increased the willingness of investors to invest across national borders. Such global business transactions and scenarios urged the accounting regulators to develop worldwide accounting standards, which resulted global harmonization of financial reporting through the International Financial Reporting Standards (ICAEW, 2011, p.3). Considering the increasing significance financial reporting harmonization, this essay provides an in-depth analysis of drivers for harmonisation of financial reporting standards. Harmonisation of Accounting Standards

Harmonization refers to an attempt of bringing together diverse systems. Therefore, global accounting harmonization is referred as the course of bringing global accounting practices into a particular agreement in order to prepare the financial reports from different countries according to a common set of standards of disclosure and measurement. Another definition of harmonization defined it as the degree of similarity or coordination among the diverse sets of Accounting methods and practices as well as the formats of reporting (Fritz & Lämmle, 2003, p.31). Thus, these definitions define harmonization of Accounting Standards as moving away the totally diverse accounting practices towards similar or coordinated accounting standards.

The explanations of harmonization consider it as a condition only a limited number of related practices of Accounting Principles are presented. Harmonization does not mean eradicating all of the differences in accounting standards, but its aim is to reduce the contradicting rules. Therefore, the objective of process of international harmonization of Accounting Principles is to decrease or overcome the variations globally, so there can be a better comparability among financial reports (Fritz & Lämmle, 2003, p.31). Companies prepare succinct and coherent financial reports in order translate its performance effectively in order to facilitate users in making informed financial investment decisions. However, this translation may differ in each national jurisdiction due to the local environment of the country in ...