Chapter 7

GLOBAL ACCOUNTING AND

AUDITING STANDARDS
INTERNATIONALIZATION OF
ACCOUNTING STANDARDS

is an endeavor of conflict

CONCEPTS :
STANDARDIZATION
HARMONIZATION
CONVERGENCE

STANDARDIZATION
The imposition of a rigid and narrow
set of rules, and may even apply a
single standard or rule to all
situations
One-size-fit-all approach
Doesnt accommodate national
differences, therefore is more
difficult to implement internationally

CRITICISMS
OF INTERNATIONAL STANDARDS
IRVING FANTL :
accounting as a social science
Differences in national backgrounds
and traditions
Differences in the needs of various
economic environments
The challenge of standardization to
national sovereignty

CRITICISMS
OF INTERNATIONAL STANDARDS
OTHER OBSERVERS:
Only large international accounting
firms are able to satisfy this demand
Complex and costly international
requirements
National and international political
intrusion
Interests in maintaining their own
standards and practices

HARMONIZATION
A process of increasing the compatibility of
accounting practices by setting limits on how much
they can vary
Free of logical conflicts (accommodates national
differences),
Should improve the comparability of financial
information from different country (has made a great
deal of progress internationally)
The most important issues facing securities
regulators, stock exchange, and those who prepare or
use financial statement:
Companies seeking capital outside of their home
markets
Investor attempting to diversify their investments
internationally
National differences in accounting measurement,

Accounting
Harmonization
Included:
Accounting standards
which deal with measurement and
disclosure

Disclosure made by publicly traded

companies
in connection with securities offerings and
stock exchange listings

Auditing standards

Benefit in (Sir Bryan Carsberg, 2000):

planning, systems costs, training, etc

Standardization,
Harmonization, and
Convergence
Standardization

Rigid, narrow set of rules

One-size-fits-all approach
Less flexible than harmonization or convergence
Not the current thinking

Harmonization

Standards that are compatible no logical conflicts

Means the elimination of differences among existing accounting
standards

Convergence

Means the gradual elimination of differences in accounting

standards
But might also involve a new accounting treatment not in any
current standard
Involves cooperative efforts of IASB and national standard-setters
Now the preferred term over harmonization

Choi/Meek, 6/e

Cross-border financial
statement
filings:
Problems related to distributing financial
statements in non domestic
jurisdictions:
Reconciliation

Foreign firms prepare financial statements

using home country accounting standards,
but also must provide a reconciliation
between critical accounting measures (e.g.:
net income, shareholders equity)

Mutual recognition (= reciprocity)

Exist when regulators outside the home
country accept a foreign firms financial
statement based on home country
principles

APPLICABILITY
OF INTERNATIONAL STANDARDS
As a result of either :
INTERNATIONAL OR POLITICAL
AGREEMENT
VOLUNTARY (OR
PROFESSIONALLY
ENCOURAGED) COMPLIANCE
DECISIONS BY NATIONAL
ACCOUNTING STANDARD
SETTERS

APPLICABILITY
OF INTERNATIONAL STANDARDS
On the applicability of international accounting
standards to small and large, uninational and
multinational, service and manufacturing firms alike,
there is the implied intention of all international
standard setters and recommenders that their
standards should apply as comprehensively as possible.
Type-of-business distinction are out of place here
In fact, though, enterprise size and degree of
multinationality are likely variables of discrimination.
Small and medium-sized national companies are not
very likely to need , or, for that matter, accept,
sophisticated international standards. They are best
served by their respective national standards.

MAJOR INTERNATIONAL
ORGANIZATIONS PROMOTING
ACCOUNTING HARMONIZATION

International Accounting Standards Board (IASB)

www.iasb.org.uk

Commission of the European Union (EU)

Europa.eu.int

International Organization of Securities

Commissions (IOSCO)
www.iosco.org

International Federation of Accountants (IFAC)

www.ifac.org

United Nations Intergovernmental Working Group

of Experts on International Standards of Accounting
and Reporting (ISAR)
www.unctad.org

Organization for Economic Cooperation and

Development Working Group on Accounting
Standards (OECD Working Group)
www.oecd.org

Adoption of IAS in Emerging

Wholly or Largely
Used IAS to
Capital
MarketsDid not Adopt IAS
Adopted IAS as
Formulate Some

Domestic Standards

Domestic Standards

Bangladesh

Nepal

Brazil

Romania

Argentina

Iran

Barbados

Oman

China

Russia

Armenia

Israel

Cayman
Islands

Pakistan

Colombia

Swaziland

Bolivia

Jamaica

Croatia

Panama

Greece

Taiwan

Botswana

Korea

Cyprus

Peru

Hongkong*

Turkey

Bulgaria

Lebanon

Czech
Republic

Philippines

India

Uruguay

Chile

Mauritius

Egypt

Poland

Kenya

Venezuela

Costa Rica

Namibia

Estonia

Singapore*

Nigeria

Zambia

Dominican
Republic

Paraguay

Indonesia

Slovenia

Portugal

Ecuador

Saudi
Arabia

Jordan

South Africa

El Salvador

Slovakia

Kuwait

Sri Lanka

Fiji

Tunisia

Latvia

Tanzania

Ghana

Ukraine

Uzbekista
Lithuania danThailand

Guatemala
*Hongkong
Singapore are not generally considered
ECMs but
are included here
n because they
Exemplify developed capital markets that have only recently emerged as important global financia
Trinidad &
Centers.

International Variations in IFRS Adoption and

Practice
(Christopher Nobes, 2011)
http://www.accaglobal.com/content/dam/acca/global/PDF-technical/financialreporting/rr-124-001.pdf

http://www.iasplus.c
om/en/resources/ifr
s-topics/use-of-ifrsg20

Note:
IAS stands for International Accounting Standards, while
IFRS refers to International Financial Reporting Standards.
IAS standards were published between 1973 and 2001,
while IFRS standards were published from 2001 onwards.
IAS standards were issued by the IASC, while the IFRS are
issued by the IASB, which succeeded the IASC.
Principles of the IFRS take precedence if theres
contradiction with those of the IAS, and this results in the
IAS principles being dropped.
(http://www.differencebetween.net/business/differencebetween-ias-and-ifrs/)

 http://www.iasplus.com/en/resources
/ifrs-topics/use-of-ifrs#totals
http://www.pwc.com/us/en/issues/ifrsreporting/publications/ifrs-status-co
untry.html
http://www.ifrs.org/use-around-the-wo
rld/pages/jurisdiction-profiles.aspx