This makes accounting by foreign- based companies that do business In America difficult as they often have to prepare financial statements using FIRS and another set using American Generally Accepted Accounting Principles. More Flexibility FIRS uses a principles-based, rather than rules-based, philosophy. A principles-based philosophy means that the goal of each standard Is to arrive at a reasonable valuation and that there are many ways to get there. This gives companies the freedom to adapt FIRS to their particular situation, which leads to more easily read and useful statements.
Manipulation There is a downside to the flexibility that FIRS allows: companies can utilize only the methods they wish to, allowing the financial statements to show only desired results. This can lead to revenue or profit manipulation, can be used to hide financial problems in the company and can even encourage fraud. For example, changing the method of inventory valuation can bring more income into the current year’s profit and loss statement, making the company appear more profitable than it really is.
While FIRS requires that changes to the application of the rules must be justifiable, it s often possible for companies to “invent” reasons for making the changes. Stricter rules would ensure that all companies are valuing their statements the same way. Cost A small company would be impacted by a country’s adoption of FIRS in the same way a larger one would. However, small businesses do not have as many resources at their disposal to implement the changes and train staff. This results In smaller companies bringing in accountants or other outside consultants to help make the changeover.
These smaller companies will bear more of a financial burden than larger ones In this area. Sponsored Links 1. *You 2. Search . Images 4. Maps play 5. 6. News 7. Gamma 8. Drive 9. Calendar 10. Translate 2. 3. 4. Top of Form Bottom of Form 2. Sign in Books No eBook available GRIN average Amazon. Com Find in a library All sellers В» O Reviewers review The Problems of International Auditing Harmonistic By Stefan Bode About this book My library My History Books on Google Play Pages displayed by permission of GRIN Average.
Copyright. Harmonistic of International Accounting Standards: Advantages & Disadvantages, Obstacles & Solutions As the trend for globalization in business becomes increasingly important corporations, governments, and investors. Due to the many conflicting codes and practices that exist between various national financial accounting standards throughout the world, international business becomes harder to analyze as information is not easily comparable between competitive industries. Deacons 2007) Because there is no standard international code for financial reporting around the world, many multi-national corporations are forced to reconcile their financial information to conform to multiple financial reporting standards. This process of reconciling financial information for conformity with different accounting systems can e expensive, and also make information misleading. As a result of the massive increase in international business and the difficulty of reporting accurate universal financial information, initiative has been taken to create a harmonistic of accounting standards between nations.
Harmonistic of accounting standards between nations is a very important current issue which has many possible benefits or consequences, as well as many obstacles to overcome for success. This paper will examine potential advantages and disadvantages of a harmonize international accounting standard; discuss various obstacles associated with the creation and implementation of these standards, and provide possible solutions to overcome these obstacles. There are many potential advantages associated with harmonistic of accounting standards.
The world economy could benefit through increasingly educated investment decisions which would lead to overall global economic growth. Accounting information can be interpreted by experts to reduce the risk of investment. One of the main tools used in financial analysis is the comparability of financial information for similar businesses in competition. Internationally adopted accounting standards would increase this ability to compare animal industries and make investment decisions less risky through greater intelligence.
A standardization of international accounting information would facilitate easier interpretation for financial experts all around the world seeking to invest internationally. This increased ability to interpret information could potentially result in an overall increase in educated global investment. Another potential benefit from the harmonistic of international accounting standards would be the reduced costs associated with multi-national corporations who must reconcile their accounting information for multiple accounting standards.
Deacons 2007) Countries with scarce resources could also take advantage of international accounting standards, because they would not have to invest resources creating and regulating national accounting standard-setting agencies. In order to be listed on credible stock exchanges, businesses must abide by the financial reporting requirements of the stock exchange it wishes to sell securities through. Stock exchanges around the world could profit from a harmonistic of accounting standards, as more companies begin to adopt the international standard, they will become eligible for listing.
As the amount of listings grows on the stock exchanges so will the volume of securities transactions. (Marion and Coinage 2001) Although there are many promising advantages of harmonistic, there are also many potential disadvantages. One possible disadvantage of harmonistic can be seen through the role culture plays in developing national accounting standards. To their nationalism and view compliance as submission to the will of other countries. A major condemnation of harmonistic comes from underdeveloped countries who view harmonistic as an obligation placed on them by countries with superior economies.
Another disadvantage of harmonistic is the vast amount of disparity that exists between different countries accounting practices. The abundant differences in accounting practices world-wide would surely lead to substantial changes for any country who adopted the international standard. These substantial changes would lead to many expenses for businesses in countries conforming to a new international standard. Another common criticism of harmonistic is the argument that an international accounting standard will not be flexible enough to deal with all the dilemmas faced by nations with differing problems and circumstances.
National accounting standards can be modified as situations change, and policies can be implemented without consent of all the nations involved in an international accounting system. (Deacons 2007) I have outlined some of the advantages and disadvantages that could possibly arise from implementing a harmonize international accounting standard. Now I will examine some of the barriers that prevent harmonistic from proceeding. Many countries have different accounting methods which are regulated in different degrees by their government.
Some countries use professional organizations to set accounting standards, whereas there are regulated strictly by the government, and some countries such as the U. S. Use both professional organizations and the government to set accounting standards. The differences seen in the accounting standard-setting bodies of the world give rise to the question: Who will write and regulate the international standard of accounting? The U. S. Is the largest economy in the world and could be an easy answer to this question, but there are many critics of the BASS standards used in the U.
S. Many believe that U. S. Accounting standards are overly complicated. Another barrier of harmonistic is the argument that capital markets eve already adjusted to international business without a set standard. Many believe harmonistic is not necessary and present systems are working well enough. (Deacons 2007) There are many potential advantages and disadvantages of international harmonistic of accounting standards, as well as many obstacles restricting implementation.
Many companies in the European Union submit to International Accounting Standards, and many other corporations reconcile financial information to provide FIRS financial statements as well as U. S. GAP. Because the U. S. Is the largest economy in the world many international companies adopt U. S. GAP financial statement to increase ability to trade with the U. S. Companies in the U. S. Must always conform to U. S. GAP and reconcile any other financial statements to meet the GAP requirements.
One possible solution to the problem of setting international accounting standards would be to provide a choice between the two most popular systems: the American GAP or the European SIS/FIRS. As more companies favor one method over the other that method will eventually become the international standard. (Deacons 2007) There are many possible solutions to implement harmonistic, but in the end, complete harmonistic of accounting reminisces will probably never be realized. There are too many variables to account 1992) References Deacons.