HARMONISATION AND DIVERSITY OF ACCOUNTING SYSTEMS

Harmonisation and Diversity of Accounting Systems



Harmonisation and Diversity of Accounting Systems

Section A

Diversities in accounting standards in different countries pose significant challenges to the international investment community. While present efforts to harmonize international accounting standards by the International Accounting Standards Committee (IASC) and the International Organization of Securities Commissions (IOSCO) are laudable, differences in accounting standards across nationwide boundaries largely remain a detail of life. Although participants in the international investment community identify that differences in accounting measurement and disclosure rules across countries can sway the usefulness of accounting numbers in accessing firm values and sway the flow of international capital, empirical clues on the relative influence of accounting diversity on firm valuation across various accounting regions is still limited.(Atle, 2007,617)

This section also investigates the influence of accounting diversity on the relation worth relevance of accounting summary numbers in four countries: the United States, the United Kingdom, Canada and Japan. These four countries are highly evolved nations with historically distinct accounting concepts and accounting practices. Each of these four countries also has very hardworking capital markets (1) and high levels of foreign direct investment flows. Most significantly, all four countries have representation on the IASC board, which approves the exposure drafts and last statements issued by the IASC. As a result, each of these four countries plays an significant function in the development of international accounting standards.(William, 2003, 1111)

While these four countries are significant participants in the world finances and are instrumental in the accounting harmonization process, the domestic accounting standards and environments of these four countries are diverse. There are numerous facets to the accounting diversity across these four countries: differences in accounting measurement and disclosure rules (GAAP differences), in administration demeanour and in the stage of alignment between economic and levy accounting, etc.(Atle, 2007,617)

While the aggregate impacts of the aforementioned factors on the worth relevance of accounting numbers are tough to disentangle, we take a capital market set about to the cross-country comparison of accounting summary numbers that allows us to gaze at the conclusion of these impacts from an equity valuation perspective (2). Using the Edwards-Bell-Ohlson (EBO) valuation form which expresses firm worth as a function of publication worth and earnings, we address the next issues: (1) if accounting diversity causes systematic differences in the junction worth relevance of accounting earnings and publication worth across these four countries, and (2) if the relation significance of earnings and publication worth disagree systematically across these countries.(James , 2007,661)

Studies show that systematic differences manage exist in the worth relevance of accounting numbers across these four countries. The junction worth relevance of earnings and publication worth is the highest in the U.S. and Japan, and the lowest in U.K. Similarities in accounting practices and the business natural environment between the U.S. and Canada manage not lead to similarity in the junction worth relevance of accounting summary numbers.(Atle, 2007,617)

In terms of the relation worth relevance of accounting earnings and publication worth, our results suggest that accounting earnings are ...