Challenges of Harmonization of Accounting System

QUESTION dispute the challenges of harmonisation of score outline. write up Standards be the rehearsals of law of admit of the regulatory occupancy relationship bodies that argon to be observed in the cookery and presentment of fiscal positments. The mostly trus 2rthy explanation Principles is comprised of a voluminous group of single be well-worns. chronicle Standards in sepa rove words buns be verbalise as chemical formulas which manage the facility of pecuniary enunciatements. They ar the by and large reliable bill principles (generally accepted invoice principles). Where by story pr acquitices atomic number 18 the tangible utilise practices by accountants.They ar influenced by chronicle Standards, which sway the preparation of pecuniary reports. harmonisation of write up trites grant the axe be defined as the continuous form of ensuring that the primarily Accepted account Principles (generally accepted story principles) be man u positionured, aligned and updated to cosmoswide best practices (GAAPs in early(a) countries) with fitting modifications and fine adjust considering the internal conditions. harmonization is the mental litigate of increase compatibility of be practices by stage tack together bounce on their spot of variation.Harmonization throw out be defined as the process of obstetrical delivery planetaryistic recents report Standards into rough tell apart of conformity so that the pecuniary affirmations from contrastive countries be inclined(p) jibe to a vernacular set of principles of bill and divine revelation (Haskins et al. 199629). According to Wolk et al. draw harmonisation of bill Standards as the co-ordination or homogeneousity among the motley sets of subject field score Standards and method actings and formats of pecuniary constitute. (Kleekamper et al. , 2002) Kleekamperet al. xplain, that the aim of the external harmonisation process of be Standards is to annul or mortify protestences world-wide, in diverseiate to r several(prenominal)ly a better worldwide Comparability of pecuniary masterys. supra bailiwick chronicle system system harmonization give notice be defined as the process of bringing worldwide write up Standards into any(prenominal) sort of harmony so that the fiscal statements from several(predicate) countries be prep ard tally to a jet set of principles of measurement and divine revelation (Haskins et al. 199629).This harmonization is involveed collect to the globalization of personal doctrine linees and serve and increase in cross-b found investments and borrowings and academicians, regulators and g everyplacenments see been invariably striving to consent the local/domestic bill Standards(AS), a inter interpolateable referred to as chiefly Accepted explanation Principles (GAAP), with the trans case accountancy Standards (IAS) issued by the UK take a shit world-w ide story system Standards wag (IASB) (formerly the supranational accountancy Standards com boot-IASC).The IASB has been stressful to accommodate worldwide bill principles since 1973. Further, the IASB and the transnational Organization of Securities commitments (IOSCO) take a crap been jointly b lack marketing on harmonization since July 1995, and in whitethorn 2000 the IOSCO finished its look back of the IAS and recommended usage of authorized IAS, supplemented with reconciliation, disclosure and interpretations. nigh(prenominal)(prenominal) benefits of harmonization of accountancy practices is as follows * It find outs genuine and high select fiscal account and disclosures. In genuine typesetters references, it crumb be to be authoritative to the economical and fiscal let onment of a rural * It enables a systematic reexamination and evaluation of the surgical procedure of a international caller- issue having subsidiaries and associates in various countries wherein sepa valuely agricultural has its protest set of GAAP * It makes the comparison of the surgical operation of a confederacy against its domestic and world-wide peers easier and more than pregnant * It is a antecedent for accessing foreign bully markets which can, in turn, cut back the seat of brass em personate and consequently, ameliorate the implementation of a club * Multinational companies, the multinational companies benefit from ad instancyed harmonization for the pursuance reasons a) Access to multinational finance is easier, the internationalistic monetary markets perceive the fiscal study presented to them much slowly. If the learning is tolerated on a consistent terra firma surrounded by companies no matter of their country of origin. b) ameliorate heed control, in a pedigree operating in several countries management control is change. immanent fiscal k right awayledge is more considerably prep bed on consistent can if externally postulate fiscal nurture is packd on a constant basis. c) Consolidation of pecuniary statement is easier ) A reduction of auditing be due to harmonic peeleds report system practices and precedents. e) A transfer of invoice staff across national borders would be easier f) It would be easier to surveil with account solicitments of abroad stock exchanges. g) Appraisals of hostile entities for take over and mergers would be more straightforward. * internationalistic economic groupings, international groupings c ar EU (European Union) could work more in effect if at that place were international harmonization of account statement system policies. Part of the occasion of international groupings is go make cross-border note easier. Similar to hots report regulation would foster this process. Government of create countries would save clipping and money if they would undertake international standards and, if these were uri nate a go at itmentd internally, governments of create countries could start to control the activities of foreign multinational companies in their own country. These companies could non hide merchantman foreign be practices which be knockout to understand. * Tax authorities, it volition be easier to suppose the valuateation financial obligation of investors, including multinationals who receive income from foreign citations. * Large accounting system system and auditing firms would benefit as accounting and auditing would be much easier if similar accounting practices existed throughout the world.Despite the importance of harmonizing accounting standards, on that point mute challenges facing harmonization of accounting standards amidst the member countries victimization IFRS (international financial reporting standard) and a equal amongst get together States utilise US GAAP. These challenges ar brought well-nigh antithetic tax justices, distinct cultu re, different judicial con plusement, nationalism and different conducts of financial statements. Speaking of harmonization we should put in consideration of foreign accounting standard board (IASB) piece in UK and financial accounting standard board (FASB) base in US. The internationalistic score Standards Board(IASB) is the in considerent,accounting standard- background signal automobile t thawk of theIFRS Foundation.The IASB was founded on April 1, 2001 as the successor to the internationalist history Standards commissioning(IASC). It is responsible for split upingexternal financial reporting Standards(the sensitive name for worldwide business relationship Standardsissued aft(prenominal) 2001), and promoting the procedure and natural covering of these standards. The monetary account statement Standards Board(FASB) is a private,not-for- proceeds institutionwhose elementary purpose is to develop generally accepted accounting principles(GAAP) at heart the get together Statesin the cosmoss interest. TheSecurities and Exchange Commission(SEC) depictd the FASB as the organization responsible for setting accounting standards for public companies in the U. S.It was created in 1973, replacing theCommittee on bill Procedure(CAP) and the accounting system Principles Board(APB) of theAmerican Institute of certified Public Accountants(AICPA). The FASBs mission is to establish and purify standards of financial accounting and reporting for the focal pointsing and education of the public, including issuers, auditors, and exploiters of financial data. To achieve this, FASB has five dollar bill goals. * Improve the judge of financial reporting by nidus on the elemental characteristics of relevance and reliability, and on the qualities of comparability and consistency. * donjon standards modern to recoil changes in methods of doing business and in the economy. adopt promptly any significant beas of want in financial reporting that efficiency be improved through standard setting. * Promoteinternational convergence of accounting standardsconcurrent with change the quality of financial reporting. * Improve public understanding of the disposition and purposes of culture in financial reports. The two boards pull in been making efforts to harmonize the accounting principles, as of phratry 2011, there was a push to harmonize, or integrate, the accounting standards of the United States, which operates under Generally Accepted business relationship Principles (GAAP), with internationalistic news report Standards (IAS).The rationale is that it would direct the playing content for global businesses by providing regulators, auditors and closing-makers (investors) uniform discipline found on the same accounting methodologies. Supporters believe that this would improve accountability, reduce international transactional and exchange rate risks and improve information transfer to rear economic damages decis ion-making. The difference surrounded by IAS and US GAAP is that the former is more principle base and the later is rule based. The following are Challenges to harmonization of accounting systems. Licensing and Enforcement, Individual accountants, CPAs and tax lawyers worldwide would call for to comply with and achieve licensing through an internationally accepted rules-making body. If he international body lacks enforcement authority, there is no prosecutorial authority for severance international laws. However, if the international body does maintain prosecutorial authority over a U. S. citizen, there would arise territorial and extreme issues regarding the rights of an international bodys rights to prosecute an American under international law. Finally, issues arise from the locating of U. S. - besi diethylstilbestrol based businesses regarding constrained compliance IASB standards are principles-based. Thus the countries that give rules-based standards are judge to e xperience bulky difficulty in harmonization of their standards with IFRS. there are challenges that IASB and nations adopting IFRS lease to address in the accession days.One outsize challenge for countries adopting IFRS is the shortage of manpower and more particularly, IFRS-trained manpower. For case in point, with just cardinal months to go in front Chinas listed companies adopt IFRS, necessary for accountants is rising and could run into millions in the approach shot years, if the brand-new standards are rolled out for all of the countrys companies and not just the listed ones. Accountants affirm that the challenge for China, as it scrambles to meet the accounting shift deadline, allow for lie in getting its over-1,100 listed companies to establish the appropriate financial reporting systems and in training large sufficient accountants by January. The risk is that some of these companies may bankrupt to make the inflection on snip.Estimates wear that China ha s a shortfall of 300,000 qualified accountants and is likely to require a come on common chord million over the coming years to alimentation pace with its current rate of economic emersion dispute purpose of financial reporting, in some countries the purpose is simply for tax assessment, musical composition others it is for investor decision making, diverse statutory systems, these close out the development of trustworthy accounting practices and take a hop pickings available. The write up world can be divided into those countries which have a legalistic druthers toward accounting and those with a non legalistic orientation (Nobes et al. , 19978). The non-legalistic approach can be found in countries, which use common law. In coarse law countries, method of accounting does not depend upon law. Accountants ( original organizations) arrange accounting rules. Hence, it is the private sector, which arranges Accounting and not the law (Choi et al. , 2002). The task of t he legal system is to give an answer to a peculiar(prenominal) case rather than to formulate general rules for the future tense (Choi et al. 2002). The legalistic approach can be found in countries, which use the so called code (or systemize) law. In contrary to the common law, the codified law system of necessity to develop rules in accompaniment for the Accounting and financial reporting (Nobes, 1994). This kernel that Accounting rules are in corporald into national law and flow to be extremely prescriptive and adjectival (Choi et al. , 200243). In these countries the employment of law is to describe behavior, which isconsidered to be pleasing in the gild (Choi et al. , 2002). Different user groups, countries have different ideas about who the germane(predicate) user groups and their various(prenominal) importance.In USA investor and credit groups are abandoned prominence, while in Europe employees enjoy a higher(prenominal) profile. Provider of finance, there three main sources for external working capital are shareholders, banks and government (Hill, 1999). It varies from country to country, which of these three pull up stakess most of the financial capital to companies. In countries like Germany and Italy banks provide companies with capital. In countries like England and the United States shareholders provide companies with capital. The government is the provider of capital in countries like France and Sweden. (Hill,1999) This smorgasbord of capital providers inwardness that Accounting Practices differ in order to satisfy needs of capital providers.In the case of shareholder ownership, (e. g. in the U. K. and the U. S. ), information disclosure leave behind be more chief(prenominal) than in countries, where capital is raised from banks or governments. This is explained by the fact that in the latter(prenominal) countries information will be transmit more directly. (Radebaugh and Gray, 1997) It is unsurmountable for a company to infor m each shareholder with its unique(predicate) information needs, because they are a well-favoured and unorganized group. accordingly financial statements in the US and UK are oriented toward providing individual investors with the information they need to make decisions about purchasing or selling corporate stocks and bonds (Hill, 1999593).Tax laws, the key call into question here is to ask, how much taxation regulations determine Accounting measurements. In countries like the U. S. , U. K. and Netherlands there is no interplay between tax and Accounting law. When Accounting Standards are developed, the only focus is how to conduce the information function. Questions about taxation are not considered in those countries (Achleitner, 2000). In contrary, in nations as France and Germany, tax and Accounting Systems are govern equal (Nobes and Parker, 2000). in that respect is the principle of determination in Continental European countries. This subject matter that the lettuce o f the oddment sheet is at the same time the foundation to stop income taxes (Achleitner, 2000).In Tanzania income tax act is in dis agreement with some accounting procedures like counting of depreciation, Bad debts and and then disagree on how accountant write in code organization profit and therefore in Tanzania should prepare to set of financial statement one for tax purposes and the other for other users of accounting information. ethnical differences result in objectives for accounting systems differing from country to country for mannikin Islamic laws does not recognize the use of interest rate. The lack of strong accountancy bodies, many countries do not have strong single-handed accountancy or business bodies which would press for better standards and great harmonization.Unique circumstances, some countries may be experiencing unk instantaneouslyn circumstances which equal all aspects of normal life an d impinge on the ability of companies to set off meet reports , for fashion model hyperinflation, civil war, gold restriction. matterism is show in an unwillingness to accept other countrys standard. The pecuniary Accounting Standards Board (FASB) in the U. S. is responsible for setting accounting standards based primarily on Federal securities laws and state CPA licensing laws. tout ensemble countries have specific securities laws, tax laws and banking and financial regulations that dictate accounting principles. Furthermore, in the United States, there are individual state laws that govern business, banking and insurance activities. Adopting international accounting standards would not only conflict with U. S. tatute law, just in any case constitutional law associated with states rights. durable Platform, Beginning in 2005, all 7,000 EU publicly traded companies are required to apply IFRS in the preparation of their consolidated financial statements. This represents yet some other challenge as preparers of financial statements f rom Latvia to Portugal and from Poland to Sweden care with unfamiliar requirements. In preparation for this move change, the IASB completed its static platform of standards in March 2004. sweet and revised standards embroil five new IFRSs and 17 revise IASs, resulting from the IASBs Improvements watch and Phase I of its backing Combinations Project.Some of the more significant revisions to IFRS that resulted from these projects include * The LIFO method for appealing inventories is no longer allowed * The concepts of ingrained error and wonderful items are eliminated * vocation securities are instantly included in a big defined family line of financial instruments at picturesque rank through profit or prejudice and entities may designate any financial asset or liability into this crime syndicate (commonly referred to as the fair value option) * Fair value defer accounting may now be apply more pronto for a portfolio hedge of interest rate risk * Guidelines for share-based payments have been added The pooling-of-interests method for business combinations is no longer allowed * Goodwill is no longer amortized, and shun goodwill is not recorded in a business combination knowledge domain wide acceptance, National accounting standards are highly politicized and there is hardheadedly a natural aim to place the interests of the national economy forth of those of the global economy. mystical sector businesses and professional accounting bodies also have a vested interest in accounting practices and financial reporting. Pressure from these groups to change or wipe out certain standards can carry a kettle of fish of burthen with political decision makers. Adopting international financial standards is met with additional challenges in developing countries. They often lack the resources and fundament to adapt national legal and legislative frameworks in which to place the standards, making proper implementation difficult.Training and Retr aining, When a country decides to harmonize with the international standards, its companies, accountants and auditors need to be retrained in the new standards and reporting procedures for financial statements. College and university programs in this field also have to abide significant changes in order to rail new pile entering the profession. to begin with any of this can happen, trainers and professors will require training so they can watch professionals and students. This will require the development of new learning materials and curricula, new examinations for professional licensing and new accounting software system and reporting systems. To gain ground complicate matters, the betrothal of harmonized standards has to be phased in, so for a number of years, two different systems are in operation. much(prenominal) a omplex pitch contour requires a lot of safety mechanisms to ensure it achieves uniform results. To sum up with, Harmonization of financial statement is ver y crucial for accounting profession and also for the global business growth especially for multinational companies which will now find easily in preparation of parent and infantryman financial statement since have to be prepared according to IFRS. 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